Answer & Question : Reverse innovation occurs when a company develops a product that meets the needs of a developed country and then adapts it to the needs of the developing country.

21.

Reverse innovation occurs when a company develops a product that meets the needs of a developed country and then adapts it to the needs of the developing country.

FALSE

Many leading companies are discovering that developing products specifically for emerging markets can pay off in a big way. In the past, multinational companies typically developed products for their rich home markets and then tried to sell them in developing countries with minor adaptations. However, as growth slows in rich nations and demand grows rapidly in developing countries such as India and China, this approach becomes increasingly inadequate. Instead, companies like GE have committed significant resources to developing products that meet the needs of developing nations, products that deliver adequate functionality at a fraction of the cost. These products have subsequently found considerable success in value segments in wealthy countries as well. Hence, this process is referred to as reverse innovation, a new motivation for international expansion.

AACSB: Analytic
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion; including the emerging trend for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

22.

The World Bank publishes the Euromoney magazine Country Risk Rating semiannual report. In the text, the January 2013 sampling of these ratings indicates that Norway is the best country in which to invest in terms of its expected level of risk based on the evaluation of its political, economic and structural risks and debt indicators and access to capital.

TRUE

Euromoney magazine publishes a semiannual Country Risk Rating that evaluates political, economic, and other risks that entrants potentially face. Exhibit 7.3 presents a sample of country risk ratings, published by the World Bank, from the 178 countries that Euromoney evaluates. Note that the lower the score, the higher the expected level of risk for new entrants into the market. The overall risk rating score for Norway is 89.97.

23.

Firms can eliminate political instability and adverse government actions risks by: competing in a range of geographic markets, developing stakeholder coalitions, cultivating relationships with key influences, and including key public/private stakeholders in their boards.

FALSE

Firms can lessen political instability and adverse government actions risks by: competing in a range of geographic markets, developing stakeholder coalitions, cultivating relationships with key influences, and including key public/private stakeholders in their boards.

24.

When U.S. currency appreciates against other currencies, U. S. goods can be less expensive to consumers in foreign countries.

FALSE

Even a small change in the exchange rate can result in a significant difference in the cost of production or net profit when doing business overseas. When the U.S. dollar appreciates against other currencies, for example, U.S. goods can be more expensive to consumers in foreign countries.

25.

When the U.S. currency appreciates against other currencies, it becomes more expensive for American companies that have branch operations overseas, when they declare foreign profits in the United States.

TRUE

Appreciation of the U.S. dollar can have negative implications for American companies that have branch operations overseas. The reason for this is that profits from abroad must be exchanged for dollars at a more expensive rate of exchange, reducing the amount of profit when measured in dollars.

26.

Differences in foreign markets such as culture, language, and customs can represent significant management risks when firms enter foreign markets.

TRUE

Management risks may be considered the challenges and risks that managers face when they must respond to the inevitable differences that they encounter in foreign markets. These take a variety of forms: culture, customs, language, income levels, customer preferences, distribution systems, and so on.

27.

Offshoring takes place when a firm decides to shift an activity that they were previously performing in a domestic location to a foreign location.

TRUE

Offshoring takes place when a firm decides to shift an activity that they were performing in a domestic location to a foreign location. For example, both Microsoft and Intel now have Research and Development facilities in India, employing a large number of Indian scientists and engineers.

AACSB: Analytic
Blooms: Remember
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion; including the emerging trend for greater offshoring and outsourcing activity.
Level of Difficulty: 1 Easy
Topic: International Expansion Company Motivations and Risks

28.	Two opposing pressures that managers face when they compete in foreign markets are cost reduction and adaptation to local markets. TRUE There are two opposing forces that firms face when they expand into global markets: cost reduction and adaptation to local markets.

AACSB: Analytic
Blooms: Remember
Learning Objective: 07-04 The two opposing forces-cost reduction and adaptation to local markets-that firms face when entering international markets.
Level of Difficulty: 1 Easy
Topic: Achieving Competitive Advantage in Global Markets

29.

Theodore Levitt, a marketing strategist, argued that people around the world are willing to sacrifice preferences in product features, functions, and design for lower prices and high quality.

TRUE

Levitt advocated global product and brand strategies based on three assumptions: customer needs and interests are becoming increasingly homogeneous worldwide; people around the world are willing to sacrifice preferences in features, design, and the like for lower prices at high quality; substantial economies of scale in production and marketing can be achieved through supplying global markets.

AACSB: Analytic
Blooms: Understand
Learning Objective: 07-04 The two opposing forces-cost reduction and adaptation to local markets-that firms face when entering international markets.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

30.

Among Theodore Levitt's assumptions that would favor a global strategy is that consumers around the world are becoming less price-sensitive.

FALSE

31.

Within a worldwide market, the most effective strategies are neither purely multidomestic nor purely global.

TRUE

All firms must balance the need to lower costs (where highly standardized products are preferred) with the need to be responsive to local pressures (where differentiating offerings is required). Most strategies incorporate some elements of both.

32.

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).

TRUE

Typically, primary activities that are downstream (e.g., marketing or service), or closer to the customer, require more decentralization to adapt to local market conditions (a multidomestic strategy). Upstream primary activities (e.g., logistics and operations) tend to be centralized (a global strategy) because there is less need for adapting them to local markets and the firm benefits from economies of scale.

AACSB: Analytic
Blooms: Understand
Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international; global; multidomestic; and transnational.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

33.	In a global strategy a firm operates all of its businesses under a single common strategy, regardless of location. TRUE With a global strategy, competitive strategy is centralized and controlled to a large extent by the corporate office.

AACSB: Analytic
Blooms: Remember
Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international; global; multidomestic; and transnational.
Level of Difficulty: 1 Easy
Topic: Achieving Competitive Advantage in Global Markets

34.

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 that appeals to the largest number of consumers in every market.

FALSE

A firm whose emphasis is on differentiating its product and service offerings to adapt to local markets follows a multidomestic strategy. Decisions evolving from a multidomestic strategy tend to be decentralized to permit the firm to tailor its products and respond rapidly to changes in demand.

35.

The need to attain economies of scale encourages multinational firms to operate under a multidomestic strategy.

FALSE

A firm whose emphasis is on differentiating its product and service offerings to adapt to local markets follows a multidomestic strategy. This typically results in lower ability to leverage economies of scale and higher cost structures.

36.

Corporations with multiple foreign operations that act very independently of one another are following a multidomestic strategy.

TRUE

37.

A multidomestic strategy would likely include the use of high volume, centralized production facilities to maximize economies of scale.

FALSE

38.

A limitation of a multidomestic strategy is that it may lead to overadaptation as conditions change.

TRUE

While the multidomestic strategy is based on adaptation to local conditions, the optimal degree of local adaptation evolves over time. Firms must recalibrate the need for local adaptation on an ongoing basis; excessive adaptation extracts a price as surely as under adaptation.

39.

Multinational firms following a transnational strategy strive to optimize the trade-offs associated with efficiency, local adaptation, and learning.

TRUE

A transnational strategy strives to optimize the trade-offs associated with efficiency, local adaptation, and learning. It seeks efficiency not for its own sake, but as a means to achieve global competitiveness. It recognizes the importance of local responsiveness but as a tool for flexibility in international operations.

40.

A key tenet of a transnational strategy is improved adaptation to all competitive situations as well as flexibility by capitalizing on communication and knowledge flows throughout the organization.

TRUE

A central philosophy of the transnational organization is enhanced adaptation to all competitive situations as well as flexibility by capitalizing on communication and knowledge flows throughout the firm. A principal characteristic is the integration of unique contributions of all units into worldwide operations.

Answer & Question

Monday 3 June 2019

Reverse innovation occurs when a company develops a product that meets the needs of a developed country and then adapts it to the needs of the developing country.

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