Marketing Management, 14e (Kotler/Keller) Chapter 21 Tapping into Global Markets 1) What is a global firm? A) A firm that operates in one country and exports its goods and services to foreign countries B) A firm that operates in more than one country and has a sales and marketing staff in those countries C) A firm that operates in more than one country and captures R&D, production, logistical, marketing, and financial advantages not available to purely domestic competitors D) A firm that sells its products and services across the world but restricts manufacturing to the home country E) A firm that operates in more than one country but restricts the sale of its products to the home country Answer: C Page Ref: 598 Objective: AACSB: Analytic skills Difficulty: Easy 2) Which of the following can induce a firm to expand into the international arena? A) Consumer preferences in the domestic market vary widely B) Average income level of domestic consumers is high C) The firm operates in an industry that caters to the mass market D) The firm finds that the domestic market is almost saturated E) The firm is yet to achieve economies of scale even though the domestic market has potential Answer: D Page Ref: 599 Objective: AACSB: Analytic skills Difficulty: Moderate 3) Zodiac Inc is one of the leading producers of designer bags in its country The company is considering shifting some of its production to India Which of the following could have prompted this move? A) People in India prefer imported designer bags B) Zodiac can target a niche market of high-profile consumers who have a high income C) Zodiac can improve its market share if it can offer better prices than its competitors D) People in the home country have an ethnocentric approach E) Market research indicates that Indian consumers have a low per-capita income Answer: C Page Ref: 599 Objective: AACSB: Analytic skills Difficulty: Moderate Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 4) Which of the following is a risk that firms must consider prior to expanding abroad? A) The domestic consumers prefer low-priced products B) The market in the foreign country may be too similar to the domestic market C) Consumers in the foreign country are very particular about the quality of the goods they consume D) The foreign country has very low pollution control standards E) The foreign country's business culture may be too different from the domestic country Answer: E Page Ref: 599 Objective: Difficulty: Moderate 5) Which of the following is the first stage of the internationalization process that can induce firms to enter the international arena? A) no regular export activities B) export via independent representatives (agents) C) establishment of one or more sales subsidiaries D) establishment of production facilities abroad E) adoption of a flexible exchange rate regime Answer: A Page Ref: 599 Objective: Difficulty: Easy 6) Once a firm decides to enter the international market, what is the next step in the decisionmaking process? A) deciding on the marketing organization B) deciding on the marketing program C) deciding how to enter the market D) deciding how to adapt the product to the new market E) deciding which markets to enter Answer: E Page Ref: 599 Objective: AACSB: Analytic skills Difficulty: Easy Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 7) WayToGrow Inc is one of the most popular brand of toys in its home market The company decides to expand its business abroad and its board of directors feel that instead of trying to establish its presence all at once in multiple markets, it is better to expand one country at a time This would limit their risk and allow them to analyze customer response, after which they could expand to other similar countries WayToGrow is following a A) shotgun approach B) continuous approach C) born global approach D) sprinkler approach E) waterfall approach Answer: E Page Ref: 600 Objective: AACSB: Analytic skills Difficulty: Moderate 8) When innovation at Siemens enables the company to offer solutions that can make the generation of hydroelectricity more environment-friendly, the company will want to reap the benefits of being the first to introduce such a product across countries In this case, which of the following approaches is likely to be the best approach to entering foreign markets? A) the rifle approach B) the continuous approach C) the born global approach D) the sprinkler approach E) the waterfall approach Answer: C Page Ref: 600 Objective: AACSB: Analytic skills Difficulty: Moderate 9) A2Z Inc is a producer of a wide variety of consumer goods in Brazil It has successfully captured a huge share of the domestic market and has been able to create a very strong brand It is now considering a foray into foreign markets Its board of directors decide to first try out some of its products in the neighboring country of Argentina A2Z plans to eventually expand its presence in other countries, after they analyze the impact of their entry into the Argentine market A2Z Inc is following a A) born global approach B) waterfall approach C) sprinkler approach D) franchisee approach E) shotgun approach Answer: B Page Ref: 600 Objective: AACSB: Analytic skills Difficulty: Moderate Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 10) In a waterfall approach to international expansion, A) firms enter countries gradually in a sequence B) firms enter those countries first where the demand for the product is greatest C) countries are entered based upon the availability of government subsidies D) firms enter those countries first where the supply of raw material is greatest E) countries are entered based upon ease of entry Answer: A Page Ref: 600 Objective: AACSB: Analytic skills Difficulty: Easy 11) In a sprinkler approach to international expansion, A) countries are entered when competition is limited B) countries are gradually entered sequentially C) countries in which the supply of raw material is greatest are entered first D) countries in which the demand for the product is greatest are entered first E) many countries are entered simultaneously Answer: E Page Ref: 600 Objective: Difficulty: Easy 12) When first-mover advantage is crucial and a high degree of competitive intensity prevails, the approach is better A) waterfall B) born global C) rifle D) sprinkler E) franchisee Answer: D Page Ref: 600 Objective: AACSB: Reflective thinking Difficulty: Easy 13) "BRIC" is an acronym for A) Brazil, Russia, India, and China B) Bolivia, Russia, Indonesia, and China C) Brazil, Russia, Indonesia, and China D) Bolivia, Russia, India, and Canada E) Bolivia, Russia, Indonesia, and Canada Answer: A Page Ref: 600 Objective: Difficulty: Easy Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 14) A2Z Inc is a producer of a huge variety of consumer goods, from soaps to shower gels, and shampoos to detergents It is a market leader in the United States and is planning to tap the immense potential in the emerging markets Market research, however, indicates that the Brazilian culture and society are substantially different from their American counterparts If the company wants to target the masses, which of the following options is most likely to succeed? A) A2Z can use a price skimming strategy to increase market share B) The company's existing strategies in the U.S will work just as well in Brazil C) A2Z can introduce smaller "sachets" of shampoos and detergents that are priced lower D) The company can introduce large family packs of shampoos and soaps even if they are priced higher than competitors E) A2Z can use a predatory pricing strategy to capture the market Answer: C Page Ref: 600 Objective: AACSB: Analytic skills Difficulty: Moderate 15) Which of the following causes a difference between marketing in the developed countries and marketing in the developing countries? A) The cost of production varies substantially between the developed and the developing world B) The disparity between the rich and the poor in the developing world is reducing C) There are substantial cultural differences between the developed and the developing world D) Marketing in developing countries is far more expensive than in the developed world E) The developing countries have more trade barriers in place than the developed countries Answer: C Page Ref: 601 Objective: Difficulty: Easy 16) Regional economic integration is defined as the creation of trading agreements between A) a firm and its suppliers and distributors B) firms targeting the same market C) individual firms in an industry D) related industries E) blocs of countries Answer: E Page Ref: 604 Objective: AACSB: Analytic skills Difficulty: Easy Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 17) is one of the world's largest single markets, with 25 member countries, a common currency, and more than 454 million consumers A) NAFTA B) MERCOSUR C) The European Union D) APEC E) ASEAN Answer: C Page Ref: 604 Objective: Difficulty: Easy 18) Which of the following countries is a member of ASEAN? A) Indonesia B) Japan C) United States D) India E) Brazil Answer: A Page Ref: 604 Objective: Difficulty: Moderate 19) Many U.S firms prefer to sell in Canada, England, and Australia—rather than in larger markets such as Germany and France—because they feel more comfortable with the languages, laws, and culture, which reflect the between these countries and the United States A) self-serving bias B) coincident development C) psychic proximity D) cognitive dissonance E) backward invention Answer: C Page Ref: 604 Objective: AACSB: Analytic skills Difficulty: Easy Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 20) NAFTA is a free trade zone comprising of which of the following countries? A) Canada, Mexico, and South America B) Canada, Mexico, and Peru C) Mexico, South America, and the United States D) Canada, Mexico, and the United States E) Canada, Japan, and the United States Answer: D Page Ref: 604 Objective: AACSB: Analytic skills Difficulty: Easy 21) MERCOSUR is a free trade zone linking which of the following countries? A) Mexico, Japan, Brazil, Paraguay, and Venezuela B) Mexico, Canada, and the United States C) Brazil, Argentina, Paraguay, and Venezuela D) Canada, Brazil, and the United States E) Brazil, Argentina, Paraguay, Uruguay, and Venezuela Answer: E Page Ref: 604 Objective: AACSB: Analytic skills Difficulty: Easy 22) While choosing countries to invest in, companies sometimes choose psychic proximity to their own country Psychic proximity can best be defined as A) countries in which the company feels comfortable with the language, laws, and culture B) countries that are located close C) countries that the home country's management team have visited D) countries that have no trade barriers E) countries with good infrastructure and stable political environment Answer: A Page Ref: 604 Objective: AACSB: Reflective thinking Difficulty: Easy Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 23) Which of the following modes of entry into a foreign market involves the maximum commitment and risk? A) franchising B) direct investment C) joint ventures D) licensing E) direct exporting Answer: B Page Ref: 605 Objective: AACSB: Analytic skills Difficulty: Easy 24) Domestic-based export merchants A) buy manufacturers' products and then sell them abroad B) manage a company's export activities for a fee C) buy foreign products and sell them in the domestic country D) seek and negotiate foreign purchases E) carry on exporting activities on behalf of several producers Answer: A Page Ref: 605 Objective: AACSB: Analytic skills Difficulty: Easy 25) Domestic-based export agents perform a valuable service for companies seeking to enter foreign markets The primary function of these agents is to A) carry on exporting activities on behalf of several producers B) buy the manufacturer's products and then sell them abroad C) buy foreign products and sell them in the domestic country D) seek and negotiate foreign purchases for a commission E) produce and export products to foreign countries Answer: D Page Ref: 605 Objective: Difficulty: Easy Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 26) Companies typically start their international foray with , which involves working through independent intermediaries who sell their products abroad A) indirect exporting B) licensing C) franchising D) direct exporting E) joint ventures Answer: A Page Ref: 605 Objective: AACSB: Reflective thinking Difficulty: Easy 27) Indirect exports have two advantages for a firm: they involve less investment and A) less paperwork B) less intrusion by the government C) less risk D) less competition E) less customer suits Answer: C Page Ref: 605 Objective: AACSB: Reflective thinking Difficulty: Easy 28) James Franks lives in Miami He buys local products from manufacturers in Miami and other parts of Florida and sells them abroad, mainly to Caribbean nations Mr Franks is a(n) A) domestic-based export merchant B) domestic-based export agent C) cooperative agent D) export-management agent E) direct exporting agent Answer: A Page Ref: 605 Objective: AACSB: Analytic skills Difficulty: Easy Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 29) Nash & Associates is a firm that takes care of all export procedures on behalf of its clients In exchange for a fee, the firm acts as the liaison between domestic manufacturers and prospective foreign buyers It has access to established distribution networks in other countries that domestic small-scale producers are unlikely to have, and facilitates communication between foreign importers and domestic producers Nash & Associates is most likely a(n) A) domestic-based export merchant B) domestic-based export agent C) cooperative organization D) export-management company E) direct exporter Answer: B Page Ref: 605 Objective: AACSB: Analytic skills Difficulty: Moderate 30) agree to manage a company's export activities for a fee A) Cooperative organizations B) Domestic-based export agents C) Export-management companies D) Domestic-based export merchants E) Contract manufacturing organizations Answer: C Page Ref: 605 Objective: AACSB: Dynamics of the global economy Difficulty: Easy 31) After successfully exporting its products through export merchants, Boyes Inc decides to take control of its exports It sets up its own unit in the home country that takes care of all export-related activities Boyes Inc is most likely using A) foreign-based distributors or agents B) domestic-based export department C) export merchants in foreign countries D) export-management companies E) traveling export sales representatives Answer: B Page Ref: 606 Objective: AACSB: Analytic skills Difficulty: Easy 10 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 87) More than 90% of future population growth is projected to occur in the less developed countries Answer: TRUE Page Ref: 600 Objective: AACSB: Analytic skills Difficulty: Easy 88) Smaller packaging and lower sales prices are often critical in markets where incomes are limited Answer: TRUE Page Ref: 600 Objective: AACSB: Multicultural diversity Difficulty: Easy 89) Regional economic integration has intensified in recent years, which makes it more difficult for marketers to expand globally Answer: FALSE Page Ref: 603 Objective: AACSB: Analytic skills Difficulty: Moderate 90) The creation of the European Union has benefited marketers wanting to enter Europe because they now have access to a homogeneous market consisting of 27 countries Answer: FALSE Page Ref: 604 Objective: AACSB: Multicultural diversity Difficulty: Easy 91) Once a company decides to target a particular country, it must determine the best mode of entry Its broad choices are indirect exporting, direct exporting, licensing, joint ventures, and direct investment Answer: TRUE Page Ref: 605 Objective: AACSB: Analytic skills Difficulty: Easy 92) Domestic-based export merchants seek and negotiate foreign purchases for a commission Answer: FALSE Page Ref: 605 Objective: Difficulty: Easy 28 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 93) Cooperative organizations carry on exporting activities on behalf of several producers and are partly under their administrative control Answer: TRUE Page Ref: 605 Objective: AACSB: Analytic skills Difficulty: Easy 94) Indirect exports are characterized by high investment, and therefore high risk Answer: FALSE Page Ref: 605 Objective: AACSB: Reflective thinking Difficulty: Easy 95) In licensing, the licensor issues a license to a foreign company to use an item of value for a fee or royalty Answer: TRUE Page Ref: 606 Objective: Difficulty: Easy 96) When the licensor provides the licensee with a complete brand concept and operating system, the arrangement is called contract manufacturing Answer: FALSE Page Ref: 606 Objective: AACSB: Analytic skills Difficulty: Moderate 97) Management contracts offer foreign owners the opportunity to manage businesses for a fee Answer: TRUE Page Ref: 606 Objective: AACSB: Analytic skills Difficulty: Easy 98) Contract manufacturing is one mode of licensing that allows a company to start faster, with the opportunity to form a partnership or buy out the local manufacturer later Answer: TRUE Page Ref: 606 Objective: Difficulty: Easy 29 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 99) The ultimate form of foreign investment is direct ownership of foreign-based assembly or manufacturing facilities Answer: TRUE Page Ref: 607 Objective: AACSB: Analytic skills Difficulty: Easy 100) The main disadvantage of direct investment is that the firm loses access to the market in case the government of that country insists locally purchased goods have domestic content Answer: FALSE Page Ref: 607 Objective: AACSB: Reflective thinking Difficulty: Easy 101) If a society is collectivist, it would imply that the self-worth of the people is rooted in individual achievements Answer: FALSE Page Ref: 609 Objective: AACSB: Multicultural diversity Difficulty: Easy 102) Straight extension means using an established product's brand name for a new item in the same product category Answer: FALSE Page Ref: 610 Objective: AACSB: Analytic skills Difficulty: Moderate 103) Product adaptation not only involves altering the product to meet local preferences, but also calls for a change in the communication strategy Answer: FALSE Page Ref: 611 Objective: Difficulty: Moderate 104) Forward invention refers to reintroducing earlier product forms that are well adapted to a foreign country's needs Answer: FALSE Page Ref: 611 Objective: AACSB: Analytic skills Difficulty: Easy 30 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 105) Communication adaptation occurs when companies change marketing communications for each local market Answer: TRUE Page Ref: 612 Objective: AACSB: Reflective thinking Difficulty: Easy 106) If Kellogg's offered different varieties of breakfast cereals in India as compared to Australia, and also positioned its products differently in the two countries, then Kellogg's would be engaging in dual adaptation Answer: TRUE Page Ref: 612 Objective: AACSB: Analytic skills Difficulty: Moderate 107) The use of media may require international adaptation because media availability varies from country to country Answer: TRUE Page Ref: 612 Objective: AACSB: Reflective thinking Difficulty: Easy 108) When companies sell on the Internet, price becomes transparent, and price differentiation between countries declines Answer: TRUE Page Ref: 613 Objective: AACSB: Reflective thinking Difficulty: Easy 109) If a company charges its subsidiary in a foreign country too low a transfer price, it can be accused of dumping Answer: TRUE Page Ref: 614 Objective: AACSB: Analytic skills Difficulty: Easy 110) Gray market activities harm distributor relations, tarnish the manufacturer's brand equity, and undermine the integrity of the distribution channel Answer: TRUE Page Ref: 614 Objective: Difficulty: Easy 31 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 111) Web-crawling technology searches for counterfeit storefronts and sales by detecting domain names similar to legitimate brands Answer: TRUE Page Ref: 615 Objective: AACSB: Reflective thinking Difficulty: Easy 112) As required levels of distribution increase, so customer prices relative to the importer's price Answer: TRUE Page Ref: 615 Objective: AACSB: Analytic skills Difficulty: Easy 113) Country-of-origin effects refer to the attitude anything produced by the home country is better than imported goods Answer: FALSE Page Ref: 616 Objective: AACSB: Reflective thinking Difficulty: Easy 114) Country-of-origin perceptions, once formed, are very difficult to change Answer: FALSE Page Ref: 615 Objective: AACSB: Reflective thinking Difficulty: Easy 115) People are often ethnocentric and favorably predisposed to their own country's products, unless they come from a less developed country Answer: TRUE Page Ref: 615 Objective: Difficulty: Easy 116) The impact of country of origin is independent of the type of product Answer: FALSE Page Ref: 615 Objective: AACSB: Reflective thinking Difficulty: Easy 32 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 117) A firm normally gets into international marketing simply by shipping out its goods Answer: TRUE Page Ref: 618 Objective: AACSB: Analytic skills Difficulty: Easy 118) The international division that is responsible for a firm's worldwide marketing activities is headed by a division president who sets goals and budgets and is in charge of the company's international growth Answer: TRUE Page Ref: 618 Objective: AACSB: Analytic skills Difficulty: Easy 119) When forces for both global integration and national responsiveness prevail to some extent, a "global" strategy that standardizes certain elements and localizes other elements can be the way to go Answer: TRUE Page Ref: 618 Objective: AACSB: Analytic skills Difficulty: Easy 120) Most companies would prefer to remain domestic if their domestic market were large enough Yet several factors are drawing more and more companies into the international arena List some of these factors Answer: Some of the factors are: (1) Some foreign markets present higher profit opportunities; (2) the company needs a larger customer base to achieve economies of scale; (3) the company wants to reduce its dependence on any one market; (4) the company decides to counterattack global competitors in their home markets; and (5) customers are going abroad and require international servicing Page Ref: 599 Objective: AACSB: Reflective thinking Difficulty: Easy 33 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 121) What are the various risks that a company must consider before making a decision to enter foreign markets? Answer: These risks are: (1) The company might not understand foreign customers' preferences and could fail to offer a competitively attractive product; (2) the company might not understand the foreign country's business culture; (3) the company might underestimate foreign regulations and incur unexpected costs; (4) the company might lack managers with international experience; and (5) the foreign country might change its commercial laws, devalue its currency, or undergo a political revolution and expropriate foreign property Page Ref: 599 Objective: AACSB: Reflective thinking Difficulty: Easy 122) Outline the major decisions that a firm must undergo in making a decision to market internationally Answer: The first step is deciding whether to go abroad; the second step is deciding which markets to enter; the third step is deciding how to enter each market; the fourth step is deciding on the marketing program; and the final step is deciding on the marketing organization Page Ref: 599 Objective: AACSB: Analytic skills Difficulty: Easy 123) Regional free trade zones exist around the world One of the oldest is the European Union, formed in 1957 Describe the purpose of the EU and discuss some of the benefits to firms engaged in trade within the European Union Answer: The EU creates a single European market by reducing barriers to the free flow of products, services, finances, and labor among member countries and develops trade policies with nonmember nations Members in the EU have access to 454 million consumers, accounting for 23% of the world's exports It has a common currency, the euro monetary system The biggest advantage of this is that companies are more likely to enter entire regions at the same time, giving them access to much larger markets Page Ref: 604 Objective: AACSB: Reflective thinking Difficulty: Easy 34 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 124) Once a company decides to target a particular country, it must determine the best mode of entry Each of its market entry strategies involves more commitment, risk, control, and profit potential List these market entry strategies in order from low risk to high risk Answer: The five modes of entry into foreign markets are as follows: (1) indirect exporting; (2) direct exporting; (3) licensing; (4) joint ventures; and (5) direct investment The level of risk involved in each rises steadily, with indirect exports entailing minimum risk, and direct investment involving the maximum risk Page Ref: 605 Objective: AACSB: Analytic skills Difficulty: Easy 125) Explain how marketers are using the Web for international business Answer: Marketers are using the Web to attract new customers outside their home countries, to support existing customers who live abroad, to source from international suppliers, and to build global brand awareness These companies adapt their Web sites to provide country-specific content and services to their best potential international markets, ideally in the local language Page Ref: 606 Objective: AACSB: Use of IT Difficulty: Easy 126) Define a joint venture and list some of the advantages and disadvantages Answer: In a joint venture, foreign investors and local investors share ownership and control A joint venture may be necessary or desirable for economic or political reasons The foreign firm might lack the financial, physical, or managerial resources to undertake the venture alone; or the foreign government might require joint ownership as a condition for entry Joint ownership has certain drawbacks The partners might disagree over investment, marketing, or other policies Joint ownership can also prevent a multinational company from carrying out specific manufacturing or marketing policies on a worldwide basis Page Ref: 607 Objective: AACSB: Reflective thinking Difficulty: Moderate 35 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 127) Most brands are adapted to some extent to reflect significant differences in consumer behavior, brand development, competitive forces, and the legal or political environment Identify the five international product and communication strategies available to firms that expand their businesses to foreign countries Answer: The five international product and communication strategies are as follows: Page Ref: 611 Objective: AACSB: Analytic skills Difficulty: Easy 128) Name the three choices that companies have for setting prices in different countries Answer: Companies have three choices for setting prices in different countries: (1) Set a uniform price everywhere; (2) set a market-based price in each country; and (3) set a cost-based price in each country Page Ref: 613 Objective: Difficulty: Easy 129) Explain the country-of-origin effect Answer: Country-of-origin perceptions are the mental associations and beliefs triggered by a country In an increasingly connected, highly competitive global marketplace, government officials and marketers are concerned with how attitudes and beliefs about their country affect consumer and business decision makers They want to strengthen their country's image to help domestic marketers who export and to attract foreign firms and investors Marketers want to use positive country-of-origin perceptions to sell their products and services Page Ref: 616 Objective: AACSB: Analytic skills Difficulty: Easy 36 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 130) Define the internationalization process' four stages Answer: Some companies don't act until events thrust them into the international arena The internationalization process typically has four stages: no regular export activities; export via independent representatives (agents); establishment of one or more sales subsidiaries; and finally, establishment of production facilities abroad Page Ref: 599 Objective: AACSB: Analytic skills Difficulty: Easy 131) A company that is planning to go global must decide on how many countries to enter and how fast to expand A company's entry strategy typically follows one of two possible approaches What are those approaches? Answer: The approaches are waterfall approach and a sprinkler approach The waterfall approach is when firms gradually enter countries in sequence It allows firms to carefully plan expansion and is less likely to strain human and financial resources The sprinkler approach entails entering many countries simultaneously When first-mover advantage is crucial and a high degree of competitive intensity prevails, the sprinkler approach is better Page Ref: 600 Objective: Difficulty: Easy 132) Define psychic proximity and explain why it is important for companies engaged in exporting products Answer: It is sometimes seen that companies determine which markets to enter on the basis of psychic proximity Many U.S firms prefer to sell in Canada, England, and Australia because they feel more comfortable with the language, laws, and culture Companies should be careful in choosing markets according to cultural distance Besides overlooking potentially better markets, they may only superficially analyze real differences that put them at a disadvantage Page Ref: 604 Objective: AACSB: Reflective thinking Difficulty: Easy 133) When deciding where to operate internationally, it often makes sense to operate in fewer countries, with a deeper commitment and penetration in each Mention some of the criteria that a country should possess in order to be a viable and attractive investment destination Answer: Companies prefer to enter countries that rank high on market attractiveness, are low in market risk, and in which the company possesses a competitive advantage Page Ref: 605 Objective: AACSB: Analytic skills Difficulty: Easy 37 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 134) Briefly describe the advantages of direct investment Answer: In direct investment, the firm: (1) secures cost economies in the form of cheaper labor or raw materials; (2) strengthens its image in the host country because it creates jobs; (3) develops a deeper relationship with government and consumers in the host country; (4) retains full control over its investment; and (5) assures itself access to the market Page Ref: 607 Objective: AACSB: Reflective thinking Difficulty: Easy 135) "No matter which nation a person belongs to, people's inherent needs and requirements are essentially the same." - Do you agree with this statement? How relevant is this statement in the context of marketing? Answer: Student answers will vary The statement may be true to the extent that the essential requirements, our physiological needs, are indeed the same However, there is no denying that people's choices and preferences are shaped by the society they live in No matter how much nations and regions integrate their trading policies and standards, each nation still has unique features Its readiness for different products and services, and its attractiveness as a market, depend on its economic, political-legal, and cultural environments In the context of marketing, therefore, it is important to understand these differences and identify the precise need a particular product or service satisfies to be able to position the product effectively Straight extensions may not always work, nor will standardized communication strategies in countries that are significantly different Page Ref: 608 Objective: AACSB: Analytic skills Difficulty: Moderate 136) International companies must decide how much to adapt their marketing strategy to local conditions Identify and explain the two strategies companies can use Answer: A company foraying into the international market can choose between a standardized marketing program and an adapted marketing program In the standardized marketing mix, no changes are made to the marketing mix when entering foreign countries At the other end is the adapted marketing mix, where the producer adjusts the marketing program to each target market Page Ref: 608 Objective: AACSB: Analytic skills Difficulty: Easy 38 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 137) Discuss three disadvantages of standardizing the marketing mix worldwide Answer: Standardizing the marketing mix (1) ignores differences in consumer needs, wants, and usage patterns for products; (2) ignores differences in consumer response to marketing-mix elements; (3) ignores differences in brand and product development and the competitive environment; (4) ignores differences in the legal environment; (5) ignores differences in marketing institutions; and (6) ignores differences in administrative procedures Students should identify any three of these Page Ref: 608 Objective: AACSB: Reflective thinking Difficulty: Easy 138) Discuss three advantages of standardizing the marketing mix worldwide Answer: Standardizing the marketing mix (1) helps the company achieve economies of scale in production and distribution; (2) lowers marketing costs; (3) increases power and scope; (4) fosters consistency in the brand image; (5) offers the company the ability to leverage good ideas quickly and efficiently; and (6) allows for uniformity in marketing practices Students should identify any three of these Page Ref: 608 Objective: AACSB: Reflective thinking Difficulty: Easy 139) Satisfying different consumer needs and wants can require different marketing programs Name the four cultural dimensions that differentiate countries, as identified by Hofstede Answer: Hofstede identified four cultural dimensions that differentiate countries: (1) individualism vs collectivism; (2) high vs low power distance; (3) masculine vs feminine; and (4) weak vs strong uncertainty avoidance Page Ref: 609 Objective: AACSB: Analytic skills Difficulty: Easy 140) Some types of products travel better across borders than others What types of products are most likely to be successful as straight extensions Answer: Straight extension introduces the product in the foreign market without any changes It has been successful with cameras, consumer electronics, and many machine tools Page Ref: 610 Objective: AACSB: Reflective thinking Difficulty: Easy 39 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 141) You work for a company that produces and markets apparel for men and women, and is planning to enter the Chinese market If you were asked if the company should opt for a straight extension or a product adaptation, what would you choose, and why? Answer: Student answers may vary If a foreign apparel maker chooses to enter the Chinese market, they will have to choose product adaptation A straight extension would imply no change in product or communication strategy However, though an increasing number of people in China understand English, the company will probably have to make some changes in its marketing mix depending on what medium of advertising is more popular and can access more people As far as the market offerings are concerned, clothes will have to be resized as the Chinese are short in stature, as compared to Americans They may also have different preferences of color and design than their American counterparts Page Ref: 610 Objective: AACSB: Analytic skills Difficulty: Moderate 142) Product adaptation alters the product to meet local conditions or preferences Identify four levels of adaptation Answer: There are several levels of adaptation, including regional versions, country versions, city versions, and retailer versions Page Ref: 611 Objective: AACSB: Analytic skills Difficulty: Easy 143) When companies sell their goods abroad, they face a price escalation problem Define price escalation Answer: A firm must add the costs of transportation, tariffs, importer margin, wholesaler margin, and retailer margin, as well as the currency-fluctuation risk while selling the product in another country Price escalation from these added costs and currency fluctuation risk might make the price two to five times as much in another country to earn the same profit for the manufacturer Page Ref: 613 Objective: AACSB: Analytic skills Difficulty: Easy 144) What are the choices available to companies when setting prices to avoid price escalation problems? Answer: The three choices that companies have to set prices in international markets are: setting a uniform price everywhere; setting a market-based price in each country; or setting a cost-based price in each country Page Ref: 613 Objective: Difficulty: Easy 40 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 145) Your company manufactures travel bags and is keen on establishing its presence in the Indian market If you were given the responsibility to decide the pricing strategy the company should use, what would you decide? Explain your answer Answer: Student answers can vary However, they must bear in mind that India is an emerging country and presents its unique set of opportunities and challenges Hence, strategies that have yielded impressive results in the U.S may not be as successful in India Targeting the affluent middle-class and the rich upper class, the company needs to know how competing products are priced in India The best way forward would be to use a cost-based pricing strategy This is because, if the distribution network is long and not as efficient, then it can add to the cost of making the product available to the consumer However, a cost-based strategy would work well only if the company can ensure competitive prices even after accounting for higher distribution costs Page Ref: 613 Objective: AACSB: Analytic skills Difficulty: Moderate 146) Define the gray market Answer: The gray market consists of branded products diverted from normal or authorized distribution channels in the country of product origin or across international borders Page Ref: 614 Objective: AACSB: Analytic skills Difficulty: Easy 147) How multinationals try to prevent gray markets? Answer: Multinationals try to prevent gray markets by policing the distributors, by raising their prices to lower-cost distributors, or by altering the product characteristics or service warranties for different countries Page Ref: 614 Objective: AACSB: Reflective thinking Difficulty: Easy 41 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 148) Describe the whole-channel concept of international marketing Answer: Many U.S manufacturers think their job is done once the product leaves the factory They should instead note how the product moves within the foreign country and take a wholechannel view of distributing products to final users The whole-channel concept consists of: (1) a seller; (2) seller's international marketing headquarters; (3) channels between nations; (4) channels within foreign nations; and (5) final buyers Thus, there are three links between the seller and the final buyer In the first, seller's international marketing headquarters, the export department or international division makes decisions about channels and other marketing activities The second link, channels between nations, gets the products to the borders of the foreign nation Decisions made in this link include the types of intermediaries (agents, trading companies), type of transportation (air, sea), and financing and risk management The third link, channels within foreign nations, gets products from their entry point to final buyers and users Page Ref: 615 Objective: AACSB: Analytic skills Difficulty: Easy 149) What are global organizations? Answer: Several firms have become truly global organizations Their top corporate management and staff plan worldwide manufacturing facilities, marketing policies, financial flows, and logistical systems The global operating units report directly to the chief executive or executive committee, not to the head of an international division The firm trains its executives in worldwide operations, recruits management from many countries, purchases components and supplies where it can obtain them at least cost, and makes investments where anticipated returns are greatest Page Ref: 618 Objective: AACSB: Multicultural diversity Difficulty: Easy 42 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall ... the CMO advocating? A) distributive marketing mix B) leveraged marketing mix C) adapted marketing mix D) engineering-driven marketing mix E) standardized marketing mix Answer: E Page Ref: 608... cell phone While discussing the marketing plans, your CMO decides that no changes will be necessary in either the marketing mix or the product for export What form of marketing strategy is the CMO... market, what is the next step in the decisionmaking process? A) deciding on the marketing organization B) deciding on the marketing program C) deciding how to enter the market D) deciding how to adapt