CH 7-8

Chapter 7 International Strategy:
Creating Value in Global Markets
True/False Questions
1. The trend towards worldwide markets makes it easier to predict where competitors will spring up.
Answer: False
2. Because many countries are investing in countries other than their own, each country is
becoming more autonomous and independent.
Answer: False
3. An advantage of international expansion is that competition within foreign countries is
generally very similar to that of the United States.
Answer: False
4. In Michael Porter's “diamond of competitive advantage,” there are four broad attributes
that, as a system, constitute a nation's competitiveness in an industry.
Answer: True
5. The factor conditions of a country are inherited and cannot be created.
Answer: False
6. With regard to “factor conditions,” the pool of resources that a firm (or nation) has is
much more important than the speed and efficiency with which these resources are
deployed.
Answer: False
7. Demanding domestic consumers tend to push firms to move ahead of companies in
other countries where consumers are less demanding and more complacent.
Answer: True
8. High levels of environmental awareness in Denmark have led to a decline in Denmark's
industrial competitiveness in the international marketplace.
Answer: False
Dess/Lumpkin, Strategic Management: Text & Cases, 2/e 349
9. Countries with a strong supplier base benefit by adding efficiency to upstream
activities.
Answer: True
10. Typically, intense rivalry in domestic markets does not force firms to look outside their
national boundaries for new markets.
Answer: False
11. Many international firms are increasing their efforts to market their products and
services to countries such as India and China as the ranks of their middle class continue
to increase.
Answer: True
12. International expansion can extend the life cycle of a product that is in its maturity stage
in a firm's home country.
Answer: True
13. An advantage of international expansion is that it can enable a firm to optimize the
location of every activity in its value chain.
Answer: True
14. The laws, and the enforcement of laws, associated with the protection of intellectual
property rights represent a significant currency and management risk to multinational
firms.
Answer: False
15. Differences in foreign markets such as culture, language, and customs can represent
significant management risks when firms enter foreign markets.
Answer: True
16. Two opposing pressures that managers face when they compete in foreign markets are:
cost reduction and adaptation to local markets.
Answer: True
17. Within a worldwide market, the most effective strategies are neither purely
multidomestic nor purely global.
Answer: True
18. Theodore Levitt has argued that people around the world are willing to sacrifice
preferences in product features, functions, and design if they are offered lower prices
and high quality.

Answer: True
19. Among Theodore Levitt's assumptions that would favor a global strategy is that
consumers around the world are becoming less price sensitive.
Answer: False
20. A multidomestic strategy is the most appropriate strategy for international operations
because it drives economies of scale as far as possible and provides a middle of the road
product appealing to the largest number of consumers in every market.
Answer: False
21. The need to attain economies of scale encourages multinational firms to operate under a
multidomestic strategy.
Answer: False
22. Industries in which proportionally more value is added in upstream activities are more
likely to benefit from a global strategy than those in which more value is added
downstream (closer to the customer).
Answer: True
23. In a global strategy a firm operates all its businesses under a single common strategy
regardless of location.
Answer: True
24. Corporations with multiple foreign operations that act very independently of one
another are following a multidomestic strategy.
Answer: True
Chapter 7 International Strateg
Multiple Choice Questions
33. A major trend in international developments includes
A) greater international trade and operations.
B) a growing recognition of an international managerial perspective.
C) a large increase in international investment.
D) all of the above
Answer: D
34. The reasons that explain why some governments make better use of the inflows from
foreign investment and know-how than others include all of the following except
A) governmental practices that are business-friendly.
B) local entrepreneurs that can train workers and invest in modern technology.
C) high tariffs and taxes on foreign investors and multinational corporations provide
income to improve living conditions.
D) sound management of broader economic factors such as interest rates and inflation.
Answer: C
35. In Michael Porter's framework all of the following factors affect a nation's
competitiveness except
A) factor conditions.
B) demand characteristics.
C) related and supported industries.
D) policies that protect the nation's domestic competitors.
Answer: D
36. All of the factors below have made India's software services industry extremely
competitive on a global scale except
A) large pool of skilled workers.
B) large network of public and private educational institutions.
C) tax and antitrust legislation that protect the dominant players in the industry.
D) large, growing market and sophisticated customers.
Answer: C
37. Rivalry is intense in nations with conditions of ________ consumer demand,
___________supplier bases, and ____________ new entrant potential from related
industries.
A) weak; weak; high
B) strong; strong; low
C) strong; strong; high
D) weak; weak; low

Answer: C
38. According to Michael Porter, firms that have experienced intense domestic competition
are
A) unlikely to have the time or resources to compete abroad.
B) most likely to design strategies aimed primarily at the domestic market.
C) more likely to design strategies and structures that allow them to successfully
compete abroad.
D) more likely to demand protection from their governments.
Answer: C
39. All of the following would be viewed as advantages of global diversification except
A) fewer social and political risks than domestic operations.
B) a firm not being solely dependent on the domestic market.
C) a firm with large margins at home helping subsidize its operations in other nations.
D) the potential to lower costs of operation even if the primary market is at home.
Answer: A
40. The sale of Boeing's commercial aircraft and Microsoft's operating systems in many
countries enable these companies to benefit from
A) higher prices in their domestic markets.
B) economies of scale.
C) optimizing the location for many activities in their value chain.
D) reducing their exposure to currency risks.
Answer: B
41. Optimizing the location of every activity in the value chain can yield all of the following
strategic advantages except
A) performance enhancement.
B) cost reduction.
C) extending the life cycle of the product of service.
D) risk reduction.
Answer: C
42. Microsoft decided to establish a corporate research laboratory in Cambridge, England
A) because England is an ally of the United States.
B) to access the outstanding technical and professional talent available there so that
they can attain world-class excellence in selected value-creating activities.
C) because the local language is English.
D) because the company views the United States as a risky place to expand due to the
actions of the U.S. Department of Justice.
Answer: B
43. Many U.S. multinational companies set up maquiladora operations south of the
US-Mexico border primarily
A) to sell products into the growing Mexican market.
B) as part of US government-initiated measures to discourage illegal immigration.
C) to take advantage of the lower tax rates in Mexico.
D) to take advantage of the low cost of labor.
Answer: D
44. Appreciation of the U.S dollar will have the following impact on McDonald's:
A) lower sales abroad because foreign customers cannot afford McDonalds' products.
B) more transfer of ingredients from the U.S to branches abroad to take advantage of
the higher dollar.
C) lower profits, because foreign profits will be reduced when measured in dollars.
D) no impact at all.
Answer: C
45. Software Tech, Inc., a company in the computer software industry, invests heavily in
R&D and product design. Thus, most of its value is added
A) upstream.
B) in its infrastructure.
C) downstream.
D) midstream.
Answer: A
46. Industries in which proportionally more value is added in ____________ activities are
more likely to benefit from a ____________ strategy.
A) downstream; global
B) upstream; multidomestic
C) upstream; global
D) manufacturing; multidomestic
Answer: C
47. Pressures to “reduce costs” require that
A) a company should not trade idiosyncratic preferences in product features for higher
economic returns.
B) a company must pursue what is economically beneficial to the company including
maximizing economies of scale and learning curve effects.
C) the manager should follow a multidomestic strategy to maximize the economic
benefits to the company.
D) the company needs to supplement the local foreign economy in a manner specified
by the local government.
Answer: B
48. Which of the following types of international firms are most likely to benefit from a
global strategy as opposed to a multidomestic strategy?
A) firms that compete in industries in which consumer preferences vary substantially
in each country
B) firms in industries that are expanding very rapidly
C) firms in industries that have value added by sales and marketing departments
D) firms in industries that have much value added in research and design or
manufacturing
Answer: D
49. Recent trends that might lead managers of multinational corporations (MNCs) to adopt
a more decentralized strategy for their operations would include all of the following
except
A) customers' needs, interests, and tastes are becoming increasingly homogenized or
similar.
B) consumers around the world are increasingly willing to trade off idiosyncratic
preferences in product features for lower price.
C) flexible manufacturing trends have allowed a decline in the minimum volume
required to reach acceptable levels of production efficiency.
D) fluctuating exchange rates.
Answer: A
50. Which one of the following is one of Theodore Levitt's assumptions supporting a pure
global strategy?
A) Consumers are willing to pay more for specific product features.
B) Customer needs and interests are becoming more dissimilar.
C) If the world markets are treated as heterogeneous, substantial economies of scale
are easily achieved.
D) MNCs can compete with aggressive pricing on low cost products that meet the
common needs of global consumers.
Answer: D
51. Low pressure for local adaptation combined with low pressure for lower costs would
suggest what type of strategy?
A) international.
B) global.
C) multidomestic.
D) transnational.
Answer: A
52. High pressure for local adaptation combined with high pressure for lower costs would
suggest what type of international strategy:
A) global
B) multidomestic
C) transnational
D) differentiation
Answer: C

53. High pressure for local adaptation combined with low pressure for lower costs would
suggest what type of international strategy:
A) global
B) multidomestic
C) transnational
D) overall cost leadership
Answer: B
54. Firms following a global strategy strive to offer ______________ products and services
as well as locate manufacturing, R&D, and marketing activities in _____________
locations.
A) a wide variety of; several
B) a wide variety of; few
C) standardized; several
D) standardized; few
Answer: D
55. All of the following are risks associated with a global strategy except:
A) a firm with only one manufacturing location must export its product—some of
which may be a great distance from the operation.
B) the geographic concentration of any activity may also tend to isolate that activity
from the targeted markets.
C) concentrating an activity in a single location makes the rest of the firm dependent on
that location.
D) the pressures for local adaptation may elevate the firm's cost structure.
Answer: D
56. All of the following are limitations of a global strategy except
A) limited ability to adapt to local markets.
B) the ability to locate activities in optimal locations.
C) the concentration of activities may increase dependence on a single facility.
D) single locations may lead to higher tariffs and transportation costs.
Answer: B
57. Gillette's worldwide success with its Sensor razor demonstrates
A) the importance of merging global and multidomestic strategies.
B) the values of establishing joint ventures with several multinational corporations.
C) that a global marketing effort can sometimes be successful.
D) the usefulness of a multidomestic strategy.
Answer: C
58. As in the case of Siebel Systems, elements of a global strategy may facilitate the
competitive advantage of differentiation by
A) increased freedom of individual business units to adapt to local tastes.
B) the creation of a worldwide network to achieve consistent service regardless of
location.
C) flexibility in applying R&D to meet country-specific needs.
D) tailoring products to meet country-specific needs.
Answer: B
59. Elements of a multidomestic strategy may facilitate the competitive advantage of cost
leadership by
A) flexibility in adjusting to local laws and customs.
B) decreased duplication of inventories which are often involved in having multiple
plants producing similar products.
C) decreased shipping and transportation costs inherent in local production.
D) economies of scale gained through centralized production of standardized products.
Answer: C
60. All of the following are limitations of a multidomestic strategy except
A) less ability to realize cost savings through scale economies.
B) greater difficulty in transferring knowledge across countries.
C) single locations may lead to higher tariffs and transportation costs.
D) may lead to “overadaptation” as conditions change.
Answer: C

61. Which of the following is a disadvantage of a transnational strategy?
A) less ability to realize cost savings through scale economies
B) limited ability to adapt to local markets
C) unique managerial challenges in fostering knowledge transfer
D) single locations may lead to higher tariffs and transportation costs.
Answer: C
62. In order to realize the strongest competitive advantage, firms engaged in worldwide
competition must
A) require that all of their various business units follow the same strategy regardless of
location.
B) ensure that all business units follow a strategy strictly tailored to their respective
locations.
C) pursue a strategy that combines the uniformity of a global strategy and the
specificity of a multidomestic strategy in order to achieve optimal results.
D) attempt to use the strategy that was most successful in their home country.
Answer: C
63. Units coordinate their activities with headquarters and with one another, units adapt to
special circumstances only they face, and the entire organization draws upon relevant
corporate resources. These are all attributes of which type of strategy?
A) a global strategy
B) a transnational strategy
C) an international strategy
D) a multidomestic strategy
Answer: B
64. Which of the following describes the most typical order of entry into foreign markets?
A) franchising, licensing, exporting, joint venture, and wholly owned subsidiary
B) exporting, licensing, franchising, joint venture, and wholly owned subsidiary
C) licensing, exporting, franchising, joint venture, and wholly owned subsidiary
D) exporting, franchising, licensing, joint venture, and wholly owned subsidiary
Answer: B
65. A domestic corporation considering expanding into international markets for the first
time will typically
A) start off by implementing a wholly owned foreign sub
69. ____________ entail the creation of a third-party legal entity, whereas __________ do
not.
A) Licensing agreements, joint ventures
B) Joint ventures; strategic alliances
C) Strategic alliances; joint ventures
D) Franchising agreements; strategic alliances
Answer: B
70. Foreign direct investment includes the following form of entry strategy:
A) licensing
B) franchising
C) joint ventures
D) exporting
Answer: C
71. A ____________ is a business in which a multinational company owns 100 percent of
the stock.
A) joint venture
B) strategic alliance
C) wholly owned subsidiary
D) franchising operation
Answer: C
72. ___________ are most appropriate where a firm already has the appropriate knowledge
and capabilities that it can leverage rather easily through multiple locations in many
countries.
A) Joint ventures
B) Strategic alliances
C) Licensing agreements
D) Wholly owned subsidiaries
Answer: D
Chapter 08 Entrepreneurial Strategy and Competitive Dynamics Answer Key
True / False Questions
1. (p. 281) Small businesses and entrepreneurial firms create the majority of new jobs in the U. S. economy.
TRUE
Young and small firms are responsible for more innovations and more new job creation than any other type of business.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-01 The role of new ventures and small businesses in the U.S. economy.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
2. (p. 282) Most small businesses in the U.S. are in retail trade and construction industries.
FALSE
Though construction and retail trade are among the largest segments in small business, they still make up only about 25% of all
US small companies.
AACSB: Analytic
Blooms: Understand
3. (p. 281, 284) Opportunity recognition is the process of identifying, selecting, and developing entrepreneurial opportunities.
TRUE
To determine which ideas are strong enough to become new ventures, entrepreneurs must go through a process of identifying,
selecting, and developing potential opportunities. This is the process of opportunity recognition.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 1 Easy
4. (p. 284) Opportunity recognition involves two phases of activity: discovery and evaluation.
TRUE
Opportunity recognition refers to more than just the "Eureka!" feeling that people sometimes experience at the moment they
identify a new idea. Although such insights are often very important, the opportunity recognition process involves two phases
of activity, discovery and evaluation, that lead to viable new venture opportunities.
AACSB: Analytic
Blooms: Remember
5. (p. 284) The evaluation phase of opportunity recognition includes the "Aha!" experience that often leads to new venture
development.
FALSE
The discovery phase refers to the process of becoming aware of a new business concept. Many entrepreneurs report that their
idea for a new venture occurred to them in an instant, as a sort of "Aha!" experience—that is, they had some insight or
epiphany, often based on their prior knowledge, that gave them an idea for a new business.
AACSB: Analytic
Blooms: Understand
6. (p. 286) The majority of entrepreneurial start-ups are financed with personal savings and the contributions of family and
friends.
TRUE
The funding available to young and small firms tends to be quite limited. In fact, the majority of new firms are low-budget start-
ups launched with personal savings and the contributions of family and friends.
AACSB: Analytic
Blooms: Understand
7. (p. 286) The majority of entrepreneurial firms are started with financing from venture capitalists and banks.
FALSE
The funding available to young and small firms tends to be quite limited. In fact, the majority of new firms are low-budget start-
ups launched with personal savings and the contributions of family and friends.
AACSB: Analytic
Blooms: Understand
8. (p. 287) Angel investors are private individuals who provide equity investments for seed capital during the early stages of a new
venture.
TRUE
Although bank financing, public financing, and venture capital are important sources of small business finance, these types of
financial support are typically available only after a company has started to conduct business and generate sales. Even "angel"
investors, private individuals who provide equity investments for seed capital during the early stages of a new venture, favor
companies that already have a winning business model and dominance in a market niche.
AACSB: Analytic
Blooms: Remember
9. (p. 289) 9 As investors, venture capitalists rarely provide any help or services to entrepreneurial firms other than financing.
FALSE
Venture capitalists nearly always have high performance expectations from the companies they invest in, but they also provide
important managerial advice and links to key contacts in an industry.
AACSB: Analytic
Blooms: Understand
10. (p. 288-289) Venture capital funding for entrepreneurial ventures is usually available only after the start-up has become a going
concern and established a track record.
TRUE
Once a venture has established itself as a going concern, other sources of financing become readily available. Banks, for
example, are more likely to provide later-stage financing to companies with a track record of sales or other cash-generating
activity. Start-ups that involve large capital investments or extensive development costs or those on the brink of rapid growth
often seek venture capital.
AACSB: Analytic
Blooms: Understand
11. (p. 289) The term "angel investors" refers to private individuals who provide seed capital to young ventures.
TRUE
In contrast to angel investors, who invest their own money, venture capital companies are organized to place the funds of
private investors into lucrative business opportunities.
AACSB: Analytic
Blooms: Remember
12. (p. 289) Venture capital is a form of public equity financing used to help young firms grow rapidly.
FALSE
Venture capital is a form of private equity financing through which entrepreneurs raise money by selling shares in the new
venture.
AACSB: Analytic
Blooms: Remember
13. (p. 289) To obtain venture capital financing, business founders often have to give up some ownership and control of their
business.
TRUE
Venture capital is a form of private equity financing through which entrepreneurs raise money by selling shares in the new
venture.
AACSB: Analytic
Blooms: Understand
14. (p. 289) According to the text, venture capitalists and angel investors regard the management team as the most important
asset of an entrepreneurial venture.
TRUE
Bankers, venture capitalists, and angel investors agree that the most important asset an entrepreneurial firm can have is strong
and skilled management.
AACSB: Analytic
Blooms: Understand
15. (p. 290) Because of the Small Business Administration and government regulations, small businesses are rarely allowed to bid
on government contracts.
FALSE
A key area of support for small business is in government contracting. Programs sponsored by the SBA and other government
agencies ensure that small businesses have the opportunity to bid on contracts to provide goods and services to the
government.
AACSB: Analytic
Blooms: Understand
16. (p. 293) An entry wedge, according to the text, is a type of entrepreneurial strategy firms can use to enter into business.
TRUE
One of the most challenging aspects of launching a new venture is finding a way to begin doing business that quickly generates
cash flow, builds credibility, attracts good employees, and overcomes the liability of newness. The idea of an entry strategy or
"entry wedge" describes several approaches that firms may take to get a foothold in a market.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-03 Three types of entry strategies-pioneering; imitative; and adaptive-commonly used to launch a new venture.
Topic: Entrepreneurial Strategy
17. (p. 293) Founders using a pioneering new entry strategy look for opportunities to capitalize on proven market successes.
FALSE
An imitative new entry strategy is used by entrepreneurs when they look for opportunities to capitalize on proven market
successes. New entrants with a radical new product or highly innovative service may change the way business is conducted in
an industry. This kind of breakthrough, creating new ways to solve old problems or meeting customers' needs in a unique new
way, is referred to as a pioneering new entry.
AACSB: Analytic
Blooms: Remember
18. (p. 293) Adaptive new entry involves offering a radical new product or highly innovative service.
FALSE
New entrants with a radical new product or highly innovative service may change the way business is conducted in an industry.
This kind of breakthrough, creating new ways to solve old problems or meeting customers' needs in a unique new way, is
referred to as a pioneering new entry.
AACSB: Analytic
Blooms: Remember
19. (p. 296) Rather than fighting over existing customers, firms pursuing a "blue ocean" strategy seek opportunities in
uncontested markets.
TRUE
In their new book Blue Ocean Strategy, W.Chan Kim and Renee Mauborgne conclude that companies that are willing to venture
into market spaces where there is little or no competition, labeled "blue oceans", will outperform those firms that limit growth
to incremental improvements in competitively crowded industries, labeled "red oceans."
AACSB: Analytic
Blooms: Remember
20. (p. 296) "Blue ocean" strategies rarely provide sustainable advantages because they are easily imitated.
FALSE
Once created, a blue ocean strategy is difficult to imitate. If customers flock to blue ocean creators, firms rapidly achieve
economies of scale, learning advantages, and synergies across their organizational systems.
AACSB: Analytic
Blooms: Understand
21. (p. 297) Because new ventures are typically small, they usually don't have high economies of scale relative to competitors.
TRUE
Because new ventures are typically small, they usually don't have high economies of scale relative to competitors. This means
that new firms must seek a different approach if they wish to pursue a cost-leadership strategy.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-04 How the generic strategies of overall cost leadership; differentiation; and focus are used by new ventures and small businesses.
22. (p. 299) Entrepreneurial firms are often in a strong position to use combination strategies because they have the flexibility to
approach situations uniquely.
TRUE
Entrepreneurial firms are often in a strong position to offer a combination strategy because they have the flexibility to approach
situations uniquely. For example, holding down expenses can be difficult for big firms because each layer of bureaucracy adds
to the cost of doing business across the boundaries of a large organization.
AACSB: Analytic
Blooms: Understand
23. (p. 300) Entrepreneurial competitive dynamics refers to a cycle of actions and responses between firms competing for the
same customers.
TRUE
Competitive dynamics is intense rivalry, involving actions and responses, among similar competitors vying for the same
customers in a marketplace.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-05 How competitive actions; such as the entry of new competitors into a marketplace; may launch a cycle of actions and reactions among close
competitors.
Topic: Competitive Dynamics
24. (p. 299-300) Entrepreneurial new entry is often perceived as a competitive threat because most market needs are being met,
either directly or indirectly, by an existing firm.
TRUE
New entry into markets, whether by start-ups or by incumbent firms, nearly always threatens existing competitors. This is true
in part because nearly every market need is already being met, either directly or indirectly, by existing firms. As a result, the
competitive actions of a new entrant are very likely to provoke a competitive response from companies that feel threatened.
This, in turn, is likely to evoke a reaction to the response.
AACSB: Analytic
Blooms: Understand
competitors.
25. (p. 302) 25 Market commonality is the extent to which rivals draw from the same types of resources.
FALSE
Market commonality is whether or not competitors are vying for the same customers and how many markets they share in
common. Resource similarity is the degree to which rivals draw on the same types of resources to compete.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and capability to respond; types of competitive
actions; and likelihood of competitive reaction.
26. (p. 302) Market commonality refers to the extent to which competitors are vying for the same customers in the same
markets.
TRUE
common. For example, aircraft manufacturers Boeing and Airbus have a high degree of market commonality because they
make very similar products and have many buyers in common.
AACSB: Analytic
Blooms: Remember
27. (p. 304) When attacked, older and larger firms tend to respond more quickly, but their responses are often more predictable.
FALSE
Older and larger firms may have more resources and a repertoire of competitive techniques they can use in a counterattack.
Large firms, however, tend to be slower to respond. Older firms tend to be predictable in their responses because they often
lose touch with the competitive environment and rely on strategies and actions that have worked in the past.
AACSB: Analytic
Blooms: Understand
28. (p. 306) Cutting prices or increasing marketing efforts are examples of tactical competitive actions.
TRUE
Two broadly defined types of competitive action include strategic actions and tactical actions. Tactical actions include
refinements or extensions of strategies. Examples of tactical actions include cutting prices, improving gaps in service, or
strengthening marketing efforts. Such actions typically draw on general resources and can be implemented quickly.
AACSB: Analytic
Blooms: Understand
29. (p. 306) In the context of competitive dynamics, tactical actions involve major commitments of distinctive and specific
resources to strategic initiatives.
FALSE
Two broadly defined types of competitive action include strategic actions and tactical actions. Strategic actions represent major
commitments of distinctive and specific resources. Such actions require significant planning and resources and, once initiated,
are difficult to reverse.
AACSB: Analytic
Blooms: Understand
30. (p. 306) Refinements or extensions of existing strategies are often referred to as tactical actions.
TRUE
Two broadly defined types of competitive action include strategic actions and tactical actions. Tactical actions include
refinements or extensions of strategies. Examples of tactical actions include cutting prices, improving gaps in service, or
strengthening marketing efforts. Such actions typically draw on general resources and can be implemented quickly.
AACSB: Analytic
Blooms: Remember
31. (p. 309) Forbearance is a particularly aggressive type of competitive attack.

FALSE
There may be many circumstances in which the best reaction is no reaction at all. This is known as forbearance, refraining from
reacting at all as well as holding back from initiating an attack.
AACSB: Analytic
Blooms: Remember
32. (p. 309) Co-opetition, where competitors work together behind the scenes, is a form of illegal tacit collusion.
FALSE
Co-opetition is a term that was coined by network software company Novell's founder and former CEO Raymond Noorda to
suggest that companies often benefit most from a combination of competing and cooperating. Close competitors that
differentiate themselves in the eyes of consumers may work together behind the scenes to achieve industrywide efficiencies.
AACSB: Analytic
Blooms: Remember
Multiple Choice Questions
33. (p. 280) In the opening case, iSold It, a firm that helped others sell products on eBay, went from one of the fastest growing
franchise businesses to a firm that saw a number of its franchises close and declining sales in a matter of months. What was a
major challenge iSold It faced that led to these problems?
A. It did not have the financial resources to maintain the rapidly growing firm.
B. The company lacked knowledgeable executives in key positions.
C. Its concept was rapidly imitated by others.
D. It had weak operational systems and could not maintain control of the growing network of stores.
iSold It overestimated customer willingness to pay an intermediary 20-30 percent of the sales price for the convenience of
listing their products and collecting the money. And with low barriers to entry in this industry, many copycat firms quickly
entered the market. In early 2007, iSold It stopped selling new franchises and is quickly losing the ones they sold.
AACSB: Analytic
Blooms: Understand
34. (p. 281) According to the text, for an entrepreneurial start-up to be successful, three ingredients are critical. What are they?
A. good ideas, a team of investors, and a business plan
B. a viable opportunity, available resources, and a qualified and motivated founding team
C. an opportunity, a marketing plan, and office space
D. management, marketing, and money
Beyond merely identifying a venture concept, the opportunity recognition process also involves organizing the key people and
resources that are needed to go forward. Exhibit 8.3 depicts the three factors that are needed to successfully proceed—
opportunity, resources, and entrepreneur(s).
AACSB: Analytic
Blooms: Understand
35. (p. 281) Which of the following is a common source of new business opportunities?
A. current or past work experiences
B. suggestions by family or friends
C. chance event
D. all of these
For new business start-ups, opportunities come from many sources—current or past work experiences, hobbies that grow into
businesses or lead to inventions, suggestions by friends or family, or a chance event that makes an entrepreneur aware of an
unmet need.
AACSB: Analytic
Blooms: Understand
36. (p. 281, 284) 36 The process of identifying, selecting, and developing new venture opportunities is known as
A. innovativeness.
B. bootstrapping.
C. opportunity recognition.
D. brainstorming.
To determine which ideas are strong enough to become new ventures, entrepreneurs must go through a process of identifying,
selecting, and developing potential opportunities. This is the process of opportunity recognition.
AACSB: Analytic
Blooms: Remember
37. (p. 284) Generally speaking, the opportunity recognition process consists of two phases of activity. They are
A. Global Search and Recycling Profits.
B. Value Creation and Affordability.
C. Discovery and Evaluation.
D. none of these.
Opportunity recognition refers to more than just the "Eureka!" feeling that people sometimes experience at the moment they
identify a new idea. Although such insights are often very important, the opportunity recognition process involves two phases
of activity, discovery and evaluation, that lead to viable new venture opportunities.
AACSB: Analytic
Blooms: Understand
38. (p. 286) Which of the following is NOT one of the characteristics of an entrepreneurial opportunity?
A. attractive
B. affordable
C. achievable
D. value creating
For an opportunity to be viable, it needs to have four qualities: attractive, achievable, durable, and value creating.
AACSB: Analytic
Blooms: Remember
39. (p. 286) When an opportunity is attractive long enough for it to be successfully developed and deployed, it is said to be
A. value creating.
B. affordable.
C. achievable.
D. durable.
For an opportunity to be viable, it needs to have four qualities, one of which is durable. This means the opportunity must be
attractive long enough for the development and deployment to be successful; that is, the window of opportunity must be open
long enough for it to be worthwhile.
AACSB: Analytic
Blooms: Remember
40. (p. 286) Which of the following terms is used to refer to opportunities that are practical and physically possible?
A. durable
B. valuable
C. achievable
D. sustainable
For an opportunity to be viable, it needs to have four qualities, one of which is achievable. This means the opportunity must be
practical and physically possible.
AACSB: Analytic
Blooms: Remember
41. (p. 286-287) Financing for entrepreneurial start-ups includes which of the following?
A. investments by family and friends
B. personal savings
C. private investors
D. all of these
The majority of new firms are low-budget start-ups launched with personal savings and the contributions of family and friends.
"Angel" investors, private individuals who provide equity investments for seed capital during the early stages of a new venture,
favor companies that already have a winning business model and dominance in a market niche.
AACSB: Analytic
Blooms: Remember
42. (p. 287) Which of the following sources of entrepreneurial financing are available to ventures that have already started to
conduct business and generate sales?
A. bank financing
B. venture capital
C. public financing
D. all of these
Although bank financing, public financing, and venture capital are important sources of small business finance, these types of
financial support are typically available only after a company has started to conduct business and generate sales.
AACSB: Analytic
Blooms: Remember
43. (p. 286) The majority of entrepreneurial start-ups are financed with
A. bank financing.
B. public financing (e.g., SBA loans).
C. venture-capital financing.
D. personal savings and the contributions of family and friends.
The majority of new firms are low-budget start-ups launched with personal savings and the contributions of family and friends.
AACSB: Analytic
Blooms: Understand
44. (p. 287) Private individuals who provide seed capital to young ventures are known as
A. angels.
B. gazelles.
C. cash cows.
D. rising stars.
"Angel" investors, private individuals who provide equity investments for seed capital during the early stages of a new venture,
favor companies that already have a winning business model and dominance in a market niche.
AACSB: Analytic
Blooms: Remember
45. (p. 288-289) All of the following statements about venture capital are true EXCEPT
A. entrepreneurs raise venture capital by selling shares of ownership in their business.
B. venture capital is a form of public equity financing.
C. venture capital is used to finance rapid growth or large capital expenditures.
D. venture capital groups can often provide helpful management advice.
Start-ups that involve large capital investments or extensive development costs may seek venture capital, a form of private
equity financing through which entrepreneurs raise money by selling shares in the new venture. Venture capitalists nearly
always have high performance expectations from the companies they invest in, but they also provide important managerial
advice and links to key contacts in an industry.
AACSB: Analytic
Blooms: Understand
46. (p. 286-289) Based on statistics reported in the text, which of the following statements is FALSE?
A. Firms that obtain venture-capital funding receive an average of over $1 million each.
B. Total investment in start-up firms averages about $80,000 in the firm's first year.
C. Among the 100 fastest-growing new businesses identified by Entrepreneur magazine, 61 percent obtained start-up funding
from personal savings.
D. Ninety percent of the companies financed with venture capital funds fail.
Among firms included in the Entrepreneur list of the 100 fastest-growing new businesses in a recent year, 61 percent reported
that their start-up funds came from personal savings. When firms receive venture-capital investments, they receive a
substantial level of investment, over $1 million on average in the Kaufmann Foundation survey. According to Exhibit 8.4, the
total average capital invested in a start-up firm is about $80,000.
AACSB: Analytic
Blooms: Understand
47. (p. 289) According to the text, new ventures launched by entrepreneurial teams are more likely to be successful than ventures
launched by
A. established corporations.
B. bootstrappers.
C. "lone wolf" entrepreneurs.
D. all of these.
Managers need to have a strong base of experience, extensive domain knowledge, and an ability to make rapid decisions and
change direction as needed. In the case of start-ups, more is better. New ventures that are started by teams of three, four, or
five entrepreneurs are more likely to succeed in the long run than are ventures launched by "lone wolf" entrepreneurs.
AACSB: Analytic
Blooms: Understand
48. (p. 286) Which of the following types of resources contribute to the success of entrepreneurial firms?
A. social capital
B. financial resources
C. human resources
D. All of these contribute to the success of entrepreneurial firms.
Resources are an essential component of a successful entrepreneurial launch. For start-ups, the most important resource is
usually money because a new firm typically has to expend substantial sums just to start the business. However, financial
resources are not the only kind of resource a new venture needs. Human capital and social capital are also important.
AACSB: Analytic
Blooms: Understand
49. (p. 291) __________ provide(s) a key avenue for growth for many young and small firms through partnering to obtain
resources and/or expand into new markets.
A. Strategic alliances
B. Bootstrappers
C. "Lone wolf" entrepreneurs
D. Research & development
Strategic alliances provide a key avenue for growth by entrepreneurial firms. By partnering with other companies, young or
small firms can expand or give the appearance of entering numerous markets and/or handling a range of operations.
AACSB: Analytic
Blooms: Understand
50. (p. 290) The U.S. Small Business Administration supports small business through all of the following EXCEPT
A. government contracting.
B. underwriting loans.
C. investing venture capital.
D. training and counseling.
In the U.S., the federal government provides support for entrepreneurial firms in two key arenas, financing and government
contracting. The Small Business Administration (SBA) has several loan guarantee programs designed to support the growth and
development of entrepreneurial firms. The government itself does not typically lend money but underwrites loans made by
banks to small businesses. The SBA also offers training, counseling, and support services through its local offices and Small
Business Development Centers.
AACSB: Analytic
Blooms: Understand
51. (p. 290) Which of the following is NOT one of the three characteristics of entrepreneurial leadership mentioned by the text?
A. vision
B. dedication and drive
C. commitment to excellence
D. clarifying job responsibilities
Entrepreneurs put themselves to the test and get their satisfaction from acting independently, overcoming obstacles, and
thriving financially. To do so, they must embody three characteristics of leadership: vision, dedication and drive, and
commitment to excellence.
AACSB: Analytic
Blooms: Understand
52. (p. 290) Why is vision such an important element of entrepreneurial leadership?
A. Because the entrepreneur has to envision realities that do not yet exist.
B. Because a vision statement must be part of the documentation used to obtain venture financing.
C. Because organizations cannot function without a detailed and operational vision.
D. All of these
Vision may be an entrepreneur's most important asset. Entrepreneurs envision realities that do not yet exist. Without a vision,
most entrepreneurs would never even get their venture off the ground.
AACSB: Analytic
Blooms: Understand
53. (p. 293) Which of the following is NOT a common new entry strategy according to the text?
A. imitative new entry
B. adaptive new entry
C. proactive new entry
D. pioneering new entry
For a new venture, the entry strategy will vary depending on how risky and innovative the new business concept is. New-entry
strategies typically fall into one of three categories: pioneering new entry, imitative new entry, or adaptive new entry.
AACSB: Analytic
Blooms: Understand
54. (p. 293) Seeking products or services that have been successful in one market and introducing the same basic product or
service in another segment of the market is referred to as
A. imitative new entry.
B. adaptive new entry.
C. proactive new entry.
D. pioneering new entry.
Imitators look for opportunities to capitalize on proven market successes. An imitative new entry strategy is used by
entrepreneurs who see products or business concepts that have been successful in one market niche or physical locale and
introduce the same basic product or service in another segment of the market.
AACSB: Analytic
Blooms: Remember
55. (p. 296) Which of the following is NOT a key element of a blue ocean strategy?
A. Pursue low cost and differentiation advantages simultaneously.
B. Make the competition irrelevant.
C. Highlight incremental improvements to capture market share.
D. Create new demand in uncharted territory.
Companies that identify and pursue blue ocean strategies follow somewhat different rules than those that are "bloodied" by
the competitive practices in red oceans. These include: creating uncontested market space, making the competition irrelevant,
creating and capturing new demand, breaking the value/cost trade-off, and pursuing differentiation and low cost
simultaneously.
AACSB: Analytic
Blooms: Understand
56. (p. 296) Cirque du Soleil is an example of a firm that successfully enacted a "blue ocean" strategy. Which of the following is a
feature of the strategy it enacted?
A. It developed its own musical scores for its circus performances.
B. It discontinued traditional parts of the circus, such as animal acts.
C. It researched customers to learn what circus features are more in demand.
D. All of these.
Cirque questioned the traditional circus formula and researched what audiences really wanted. It found that interest in animal
acts was declining, in part because of public concerns over the treatment of circus animals. Because managing animals was
costly, Cirque eliminated them. Cirque offers multiple productions with theatrical story lines, giving audiences a reason to go to
the circus more often. Each production has a different theme and its own original musical score.
AACSB: Analytic
Blooms: Understand
57. (p. 297) "Doing more with less", by holding down costs or making more efficient use of resources is one of the ways
entrepreneurs achieve success. This is an example of how entrepreneurs use
A. an imitative strategy.
B. a low-cost leader strategy.
C. a differentiation strategy.
D. a combination strategy.
One of the ways entrepreneurial firms achieve success is by doing more with less. By holding down costs or making more
efficient use of resources than larger competitors, new ventures are often able to offer lower prices and still be profitable. Thus,
under the right circumstances, a low-cost leader strategy is a viable alternative for some new ventures.
AACSB: Analytic
Blooms: Understand
58. (p. 297) Entrepreneurial firms that pursue a low-cost leadership strategy use which of the following to achieve lower costs?
A. cost-saving technology such as the Internet
B. simple organizational structures
C. rapid decision making
D. all of these
Compared to large firms, new ventures often have simple organizational structures that make decision making both easier and
faster. The smaller size also helps young firms change more quickly when upgrades in technology or feedback from the
marketplace indicate that improvements are needed.
AACSB: Analytic
Blooms: Understand
59. (p. 298-299) When an industry is mature, a __________ strategy is considered to be one of the most effective approaches for a
new entrant.
A. focus
B. differentiation
C. overall low-cost
D. small business
Most start-ups enter industries that are mature, where growth in demand tends to be slow and there are often many
competitors. If a start-up wants to get a piece of the action, it often has to take business away from an existing competitor. If a
start-up enters a market with a broad or aggressive strategy, it is likely to evoke retaliation from a more powerful competitor.
Young firms can often succeed best by finding a market niche where they can get a foothold.
AACSB: Analytic
Blooms: Understand
60. (p. 298) According to the text, all of the following might make it difficult for entrepreneurial firms to effectively pursue a
strategy of differentiation EXCEPT
A. incumbent firms are constantly seeking opportunities to specialize in market niches.
B. differentiation strategies are often expensive to enact.
C. it may be difficult for a young firm to establish a strong brand identity.
D. implementing superior new technologies may be challenging for entrepreneurial firms.
There are several factors that make it more difficult for new ventures to be successful as differentiators. For one thing, the
strategy is generally thought to be expensive to enact. Differentiation is often associated with strong brand identity, and
establishing a brand is usually considered to be expensive because of the cost of advertising and promotion, paid
endorsements, exceptional customer service, etc. Differentiation successes are sometimes built on superior innovation or use
of technology.
AACSB: Analytic
Blooms: Understand
61. (p. 300) Intense rivalry involving actions and responses among similar competitors vying for the same customers in a
marketplace is known as
A. competitive dynamics.
B. resource similarity.
C. threat of substitutes.
D. pioneering new entry.
Competitive dynamics is the term for an intense rivalry, involving actions and responses, among similar competitors vying for
the same customers in a marketplace.
AACSB: Analytic
Blooms: Remember
competitors.
62. (p. 301) Which of the following is NOT one of the reasons a company might launch new competitive actions?
A. to obtain first mover advantages
B. to improve market position
C. to capitalize on growing demand
D. to find new sources of raw materials
There are several reasons why companies launch new competitive actions, including to improve market position, capitalize on
growing demand, expand production capacity, provide an innovative new solution, or obtain first mover advantages.
AACSB: Analytic
Blooms: Understand
63. (p. 302) Netflix CEO Reed Hastings made this important observation about dealing with rivals:
A. "In a highly competitive marketplace, firms must be paranoid about the multitude of potential rivals."
B. "You can afford to ignore rivals in small markets, but you can never ignore rivals in large markets, such as online video
companies like YouTube."
C. "There are tens and maybe hundreds of start-ups who think that they are going to eat Netflix's lunch. The challenge for a
management team is to figure out which are real threats and which aren't."
D. "Netflix's position is so strong that I don't worry about new entrants."
Netflix founder and CEO Reed Hastings has faced numerous competitive threats since launching the online movie rental
company in 1997. According to Hastings, however, not all potential threats need to be taken seriously: "We have to recognize
that now there are tens and maybe hundreds of start-ups who think that they are going to eat Netflix's lunch. The challenge for
a management team is to figure out which are real threats and which aren't. . . . It's conventional to say, "only the paranoid
survive" but that's not true. The paranoid die because the paranoid take all threats as serious and get very distracted."
AACSB: Analytic
Blooms: Understand
64. (p. 302) Aircraft makers Boeing and Airbus have a high degree of __________ because they make very similar products and
have many buyers in common.
A. dynamic capabilities
B. market commonality
C. first mover advantages
D. equity funding
common. For example, aircraft manufacturers Boeing and Airbus have a high degree of market commonality because they
make very similar products and have many buyers in common.
AACSB: Analytic
Blooms: Understand
65. (p. 302-305) The Wall Street Journal and the New York Times have seen the intensity of their rivalry increase. One factor driving
this is that the Wall Street Journal has moved from financial news reporting to general national and global news reporting and
finally, to adding local New York news. The rivalry of these two news providers has increased due to
A. increased dynamic capabilities.
B. increased market commonality.
C. erosion of first mover advantages.
D. the choice of tactical over strategic actions.
common. Here, the changes to the Wall Street Journal's reporting means the two newspapers are now competing for the same
customers.
AACSB: Analytic
Blooms: Understand
66. (p. 302, 306) Which of the following questions should a firm ask itself before responding to a competitive attack?
A. How serious is the impact of the attack?
B. What is our competitive intent—do we want to blunt the attack or enhance our competitive position with our response?
C. What resources do we have available for a response?
D. All of these.
common. For example, chipmakers Intel and Advanced Micro Devices (AMD) have fought an intense competitive battle for over
two decades. Their battle points out how highly competitive firms can take their competitive attacks to multiple battlefields.
AACSB: Analytic
Blooms: Understand
67. (p. 304) Which of the below best describes the competitive tendencies of small firms?
A. Because they lack legitimacy in the marketplace, small firms tend to signal their competitive actions long before they launch
those actions.
B. Small firms typically have more resources available as they undertake competitive attacks than do large firms.
C. Small firms are more nimble and can respond quickly to competitive attacks.
D. All of these.
Consider the role of firm age and size in calculating a company's ability to respond. Most entrepreneurial new ventures start
out small. The smaller size makes them more nimble compared to large firms so they can respond quickly to competitive
attacks.
AACSB: Analytic
Blooms: Understand
68. (p. 306) Cirrus Aircraft, a leading manufacturer of small airplanes, sees a market opportunity and has decided to double its
plant capacity over the next two years. What type of competitive action does this represent?
A. A tactical action because the move is an attempt to fill a gap in service.
B. A strategic action because such a large plant expansion will require a major commitment of resources.
C. A strategic action because the firm can easily reverse the action at any time, thus giving Cirrus more strategic flexibility.
D. A guerilla offensive because it is fast and will surprise its rivals.
This is a strategic action because it represents a major commitments of distinctive and specific resources. Such actions require
significant planning and resources and, once initiated, are difficult to reverse.
AACSB: Analytic
Blooms: Apply
Level of Difficulty: 3 Hard
69. (p. 306-307) All of the following are examples of strategic actions a firm might take EXCEPT
A. acquire with competitors to reduce competition.
B. expand into neglected markets.
C. change product packaging.
D. tie up raw materials sources.
Strategic actions represent major commitments of distinctive and specific resources. Examples include launching a
breakthrough innovation, building a new production facility, or merging with another company. Such actions require significant
planning and resources and, once initiated, are difficult to reverse.
Refer to Exhibit 8.9
AACSB: Analytic
Blooms: Understand
70. (p. 306-307) The best example of a tactical action that a company might use in response to a competitive attack is to
A. acquire the competitor.
B. target the rival's markets.
C. expand into new geographical areas.
D. offer price discounts and rebates.
Tactical actions include refinements or extensions of strategies. Examples of tactical actions include cutting prices, improving
gaps in service, or strengthening marketing efforts. Such actions typically draw on general resources and can be implemented
quickly.
Refer to Exhibit 8.9
AACSB: Analytic
Blooms: Understand
71. (p. 308) All of the below are factors that affect how a competitor will respond to a competitive attack EXCEPT
A. how dependent the competitor is on that industry or particular market segment.
B. the degree of market power and reputation of the company that initiated the attack.
C. the resources which are available for a firm to respond.
D. the stock market reaction to the initial competitive attack.
How a competitor is likely to respond will depend on three factors: market dependence, competitor's resources, and the
reputation of the firm that initiates the action (actor's reputation).
AACSB: Analytic
Blooms: Understand
72. (p. 308) Which of the following refers to a situation where a company has a high concentration of its business in a particular
industry's market?
A. competitor's resources
B. market dependence
C. resource similarity
D. actor's reputation
If a company has a high concentration of its business in a particular industry, it has more at stake because it must depend on
that industry's market for its sales, which is known as market dependence. Single-industry businesses or those where one
industry dominates are more likely to mount a competitive response.
AACSB: Analytic
Blooms: Remember
73. (p. 309) A firm is considering a large price cut on its leading product as a way to gain market share. One executive strongly
disagrees with the price cut and states, "We are in the same marketplace as our rivals, and we do not have any competitive
advantages in our cost structure. If we cut prices, our competitors will likely do the same. The end result is that we will all make
less money." These arguments are an example of
A. a strategy of forbearance.
B. a strategy of co-opetition.
C. a hardball strategy whereby competitive actions are not undertaken without a clear advantage.
D. a weakness strategy that leads a company into constant decline.

CH 7-8

Загружено:

Сведения о документе

Исходное описание:

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

CH 7-8

Загружено:

Авторское право:

Доступные форматы

Chapter 7 International Strategy:

Creating Value in Global Markets

becoming more autonomous and independent.

3. An advantage of international expansion is that competition within foreign countries is

generally very similar to that of the United States.

that, as a system, constitute a nation's competitiveness in an industry.

5. The factor conditions of a country are inherited and cannot be created.

7. Demanding domestic consumers tend to push firms to move ahead of companies in

8. High levels of environmental awareness in Denmark have led to a decline in Denmark's

industrial competitiveness in the international marketplace.

Dess/Lumpkin, Strategic Management: Text & Cases, 2/e 349

Chapter 7 International Strategy:

Creating Value in Global Markets

9. Countries with a strong supplier base benefit by adding efficiency to upstream

national boundaries for new markets.

in a firm's home country.

location of every activity in its value chain.

property rights represent a significant currency and management risk to multinational

significant management risks when firms enter foreign markets.

cost reduction and adaptation to local markets.

Chapter 7 International Strategy:

Creating Value in Global Markets

multidomestic nor purely global.

and high quality.

consumers around the world are becoming less price sensitive.

product appealing to the largest number of consumers in every market.

downstream (closer to the customer).

another are following a multidomestic strategy.

Dess/Lumpkin, Strategic Management: Text & Cases, 2/e 351

Chapter 7 International Strateg

Chapter 7 International Strategy:

Creating Value in Global Markets

Multiple Choice Questions

33. A major trend in international developments includes

A) greater international trade and operations.

B) a growing recognition of an international managerial perspective.

C) a large increase in international investment.

D) all of the above

A) governmental practices that are business-friendly.

income to improve living conditions.

C) related and supported industries.

D) policies that protect the nation's domestic competitors.

competitive on a global scale except

A) large pool of skilled workers.

B) large network of public and private educational institutions.

D) large, growing market and sophisticated customers.

Dess/Lumpkin, Strategic Management: Text & Cases, 2/e 353

Chapter 7 International Strategy:

Creating Value in Global Markets

37. Rivalry is intense in nations with conditions of ________ consumer demand,

___________supplier bases, and ____________ new entrant potential from related

A) weak; weak; high

B) strong; strong; low

C) strong; strong; high

D) weak; weak; low

A) unlikely to have the time or resources to compete abroad.

B) most likely to design strategies aimed primarily at the domestic market.

D) more likely to demand protection from their governments.

A) fewer social and political risks than domestic operations.

B) a firm not being solely dependent on the domestic market.

countries enable these companies to benefit from

A) higher prices in their domestic markets.

_supplier bases, and __ new entrant potential from related