Chapter 15 10.

Currency appreciation can transform a low-cost

1. In recent years, the trend among U.S. firms is to location into a high-cost location.
outsource the “production” of certain service activities
to developing nations where labor costs are lower. True False

True False 11. In international business, a relatively high level

2. The production and logistics functions of an
international firm are independent of each other.
True False
3. The objectives of reducing costs and increasing
quality in a firm are independent of each other.
True False
4. A firm that improves its quality control cannot
reduce its costs of value creation simultaneously.
of fixed costs can make it economical to perform a
particular activity in several locations at once.
True False
12. The concept of economies of scale tells us that
as plant output expands, unit costs decrease.
True False
13. The level of output at which most plant-level
scale economies are exhausted is referred to as the
minimum efficient scale of output.

True False True False

5. W. Edward Deming believed that achieving 14. In terms of minimum efficient scale of output,
better quality requires the commitment of everyone in a the "unit cost curve" rises with output until a certain
company. output level is reached, at which point further increases
in output realize little reduction in unit costs.
True False
True False
6. In terms of Six Sigma, the higher the number of
“sigmas,” the greater the number of errors. 15. A wide product variety makes it easier for a firm
to increase its production efficiency and thus reduce its
unit costs.
True False
True False
7. In international business, production and
logistics functions need not accommodate demands for 16. Flexible manufacturing technologies allow a
local responsiveness. company to produce a wider variety of end products at a
unit cost that at one time could be achieved only
True False through the mass production of a standardized output.

8. In recent years, time-based competition has lost True False

its importance in international business.
17. Flexible machine cells, a flexible manufacturing
True False technology, cannot be used for mass customization.

9. In international business, when consumer True False

demand is prone to large and unpredictable shifts, the
firm that can adapt most quickly to these shifts will gain
an advantage.
True False
18. With the advent of flexible manufacturing
technologies and mass customization, manufacturing in
each major market in which the firm is active is
becoming less attractive.

True False
19. When flexible manufacturing technologies are
not available, a firm can manufacture products
customized to various national markets at a single
factory sited at the optimal location.
True False
20. Industrial products have few national differences
in consumer taste and preference, hence the need for
local responsiveness is reduced for such products.
True False
21. Other things being equal, when fixed costs are
substantial and minimum efficient scale of production is
high, the arguments for concentrating production at a
few choice locations are strong.
True False
22. Since refined sugar has a low value-to-weight
ratio, even if it is shipped halfway around the world,
their transportation costs account for a very small
percentage of total costs.
True False
23. The strategic role of establishing a foreign
production facility is to produce labor-intensive products
at as low a cost as possible.
True False
24. A source of improvement in the capabilities of a
foreign production site is the pressure to customize a
product to the demands of consumers in a particular
nation.
True False
25. A major aspect of a transnational strategy is a
belief that valuable knowledge resides in a firm's
domestic operations instead of its foreign subsidiaries.
True False
26. In recent years, the outsourcing decision in
international businesses has gone beyond the
manufacture of physical products to embrace the
production of service activities.
True False
27. When substantial investments in specialized
assets are required to manufacture a component, a firm
will prefer to contract it out to a supplier rather than
make the component internal
True False
28. The complexity of transfer pricing decisions
enhances internal suppliers’ ability to manipulate
transfer prices to their advantage, passing cost increases
downstream rather than looking for ways to reduce
costs
True False
29. A firm that sources its product components from
internal suppliers has fewer subunits to control than a
firm that sources from independent suppliers.
True False
30. A firm that enters long-term alliances may limit
its strategic flexibility by the commitments it makes to
its alliance partners.
True False
31. Under a just-in-time inventory system, a
company can reduce the amount of working capital it
needs to finance inventory, freeing capital for other uses
and/or lowering the total capital requirements of the
enterprise.
True False
32. The drawback of a just-in-time inventory system
is that it leaves a firm with excess unsold inventory that
it has to write off against earnings or price low to sell.
True False
33. Firms typically use electronic data interchange
(EDI) via the Internet to coordinate the flow of materials
into manufacturing, through manufacturing, and out to
customers.
True False A. strong intellectual property rights laws.
B. lower labor costs.
34. Good electronic data interchange systems C. accessibility to better technology.
provide corporate-level managers with the information D. sophisticated infrastructure.
they need for coordinating and controlling decentralized E. currency appreciation.
materials management groups.
39. An important objective shared by both
True False production and logistics functions of an international
firm is to:
35. Proprietary software solutions to implement
electronic data interchange systems now dominate the A. increase profits by lowering quality.
market for global supply chain management software. B. increase foreign competition.
C. lower costs by dispersing production activities.
True False D. decrease inventory turnover.
E. stock excess inventory on hand.

Multiple Choice Questions 40. A second strategic objective shared by

production and logistics is to increase product quality by
36. Which of the following is true about production eliminating defective products from both the supply
and logistics in international businesses? chain and the manufacturing process. In this context,
quality means _____, implying that the product has no
defects and performs well.
A. The term production cannot be used to denote
service activities.
B. Developing nations are outsourcing the A. affordability
“production” of certain service activities to the United B. flexibility
States. C. reliability
C. In an international firm, production and logistics D. adaptability
are closely linked. E. patentability
D. The production functions of an international firm
can only be located in its home country. 41. Which of the following is a consequence of
E. Demands for local responsiveness create improved quality control?
pressures to centralize production activities.
A. Greater warranty costs
37. _____ refers to the activity that controls the B. Higher scrap costs
transmission of physical materials through the value C. Direct reduction in unit costs
chain, from procurement through production and into D. Decreased productivity
distribution. E. Reduced inventory turnover

A. Promotion 42. The effect of improved quality control is to lower

B. Recruitment the costs of value creation by reducing production and:
C. Logistics
D. Benchmarking A. decreasing inventory turnover.
E. Inshoring B. decreasing after-sales service costs.
C. increasing scrap costs.
38. Champion Works Inc. is an animation company, D. increasing warranty costs.
headquartered in the U.S. The CEO of the company has E. increasing time spent on fixing defects.
decided to outsource some of the production to
companies in developing countries, as the firm seems to 43. Manufacturing firms should typically aim at
be losing out on its competitive advantage. This decision lowering the costs of value creation by:
to shift functions or processes to less developed
countries is due to their: A. decreasing inventory turnover.
B. stocking huge amounts of inventory.
C. lowering the quality of products. E. He recommended that management should
D. increasing after-sales services cost. create an environment in which employees will fear
E. reducing production costs. recommending improvements.

44. The principal tool that most managers now use 48. Which of the following companies adheres to
to increase the reliability of their product offering is the total quality management steps identified by W.
_____, a statistically based methodology for improving Edward Deming?
product quality. It is a direct descendant of the total
quality management philosophy. A. Unisorn Inc. believes in empowering employees
by reducing interactions between them and their
A. Six Sigma supervisors.
B. lean manufacturing B. Galaxy Inc. empowers its employees to report
C. just-in-time inventory problems or recommend improvements without any
D. ISO 9000 fear.
E. mass customization C. New Run Inc. bases its work standards solely on
numbers or quotas.
45. The Six Sigma methodology is a direct D. Ovion Inc. believes that the management is not
descendant of the _____ philosophy that was widely responsible for training employees in new skills.
adopted, first by Japanese companies and then E. Tirex Inc. endorses that the achievement of better
American companies during the 1980s and early 1990s. quality is solely dependent on the lower management.

A. total quality management 49. Which of the following best describes the
B. enterprise resource planning relationship between the number of “sigmas” and the
C. business process reengineering number of errors?
D. just-in-time
E. business process outsourcing
A. The higher the number of "sigmas," the greater
46. The total quality management philosophy was the number of errors.
developed by a number of American consultants. Which B. If the number of "sigmas" is a positive value, then
of the following individuals is one of them? the number of errors is always a negative value.
C. The higher the number of "sigmas," the smaller
A. W. Edward Deming the number of errors.
B. Philip Kotler D. The number of "sigmas" is independent of the
C. Michael Porter number of errors.
D. Henry Ford E. If the number of "sigmas" is negative, then the
E. Valerie Zeithaml number of errors is always positive.

47. Which of the following is true of W. Edward 50. A statistically based philosophy that aims to
Deming's beliefs about the total quality management reduce defects, boost productivity, eliminate waste, and
philosophy? cut costs throughout a company is known as _____.

A. He suggested that the quality of supervision A. ISO 9000

should be improved by allowing more time for B. just-in-time
supervisors to work with employees. C. Six Sigma
B. He argued that management should embrace the D. lean production
philosophy that mistakes, defects, and poor-quality E. total quality management
materials are acceptable.
C. He believed that work standards should be 51. Six Sigma refers to a statistically based
defined as numbers or quotas. philosophy that aims to:
D. He believed that achieving better quality requires
the commitment of only the top management. A. increase defects.
B. lower productivity.
C. increase the costs of value creation.
D. eliminate waste. 56. Uniway Technologies Inc. has based its
E. increase cost per unit. manufacturing units in the country of Lanthania. The
country's stable economic and political environment has
52. Which of the following statements is true of Six helped the firm gain competitive advantage by lowering
Sigma? its production costs and improving product quality.
Other things being equal, the benefits realized from such
A. The higher the number of "sigmas," the higher a strategy can be typically referred to as _____.
the number of errors.
B. At Six Sigma, a production process would be 90 A. economies of scope.
percent accurate. B. location economies.
C. Six Sigma work standards are based solely on C. diseconomies of scale.
numbers or quotas. D. economies of power.
D. It is almost impossible for a company to achieve E. learning economies.
Six Sigma perfection.
E. Six Sigma is the modern successor to ISO 9000. 57. Which of the following location externalities is
favorable for foreign direct investment in a country?
53. Pink Polka Fashion Inc., a multinational clothing
brand, has plans to expand in the European Union (EU) A. Presence of supporting industries
marketplace. In order to be able to do so, the EU B. Market saturated with other foreign competitors
requires that the: C. Lack of intellectual property rights laws
D. Presence of a communist political system
A. firm adopt techniques of total quality E. Adverse changes in currency exchange rates
management.
B. firm achieve six sigma. 58. Which of the following is a consequence of
C. firm uses just-in-time inventory system. adverse changes in exchange rates?
D. firm patents its designs and technology.
E. firm’s products be certified under ISO 9000. A. It brings more foreign direct investment into the
country.
54. Which of the following is a drawback of ISO 9000 B. It decreases the dollar cost of products exported
certification? from the country.
C. It alters a country’s attractiveness as a
A. It is bureaucratic and costly for many firms. manufacturing base.
B. It is an impossible standard to achieve. D. It transforms the country into a low-cost location.
C. It is losing its prominence in international E. It decreases the amount of imports brought into
business. the country.
D. It is ineffective in Europe.
E. It is ineffective in bringing about quality 59. Which of the following statements is true about
improvement. performing a manufacturing activity in several locations
at once?
55. To be able to accommodate demands for local
responsiveness, a firm should: A. A manufacturing activity must be performed at
multiple locations when the fixed costs of setting up a
A. ignore national differences in consumer tastes production plant are high.
and preferences. B. Performing a manufacturing activity in several
B. decentralize production activities to the major locations makes it difficult for a firm to accommodate
national or regional markets. demands for local responsiveness.
C. ensure that the manufacturing processes in all C. Producing in multiple locations reduces the
units are inflexible. bargaining power of a firm against manufacturers.
D. standardize the product coming out of all D. The larger the minimum efficient scale of a plant
manufacturing units. relative to total global demand, the greater the need for
E. refrain from hiring host country managers. decentralizing production to multiple locations.
E. Many firms disperse their manufacturing plants C. When the minimum efficient scale of production
to different locations as a “real hedge” against is low relative to global demand, it will be economical to
potentially adverse moves in currencies. manufacture a product at a single location.
D. An advantage of a low minimum efficient scale is
60. The concept of _____ tells us that as plant that it allows the firm to accommodate demands for
output expands, unit costs decrease. One reason is the local responsiveness.
greater utilization of capital equipment. E. A low minimum efficient scale increases the risks
against potentially adverse fluctuations in exchange rates.
A. minimum efficient scale
B. lean production 64. Which of the following is a consequence of a low
C. Six Sigma minimum efficient scale?
D. economies of scale
E. total quality management A. It prevents a firm from utilizing capital equipment
fully.
61. The level of output at which most plant-level B. It enhances the need to centralize production in a
scale economies are exhausted is known as _____. single location or a limited number of locations.
C. It prevents a firm from accommodating demands
A. mass customization for local responsiveness.
B. breakeven point D. It increases the unit cost of products.
C. minimum efficient scale E. It allows a firm to hedge against currency risk by
D. just-in-time manufacturing the same product in several locations.
E. lean production
65. A firm with a wide product variety will find it:
62. Uvicon Inc. and Bionor Inc. are firms that
compete against each other in the global market. Uvicon A. difficult to achieve shorter product runs.
Inc. has a high level of fixed costs and high minimum B. difficult to increase its product sales.
efficient scale, while Bionor Inc. has a low level of fixed C. difficult to reduce its unit costs.
costs and minimum efficient scale. In this scenario, D. easy to realize economies of scale.
which of the following is true? E. easy to reach optimum production efficiency.

A. Uvicon Inc. will be better prepared to hedge 66. Producing a standardized product in large
against potential adverse moves in currencies than Bionor volumes will:
Inc.
B. Uvicon Inc. will benefit from centralizing its A. result in diseconomies of scale.
production activities and Bionor Inc. from decentralizing. B. increase production efficiency.
C. Uvicon Inc. will have more bargaining power over C. increase production costs.
contract manufacturers than Bionor Inc. D. result in shorter production runs.
D. Uvicon Inc. will be better enabled to adapt to E. result in a high minimum efficient scale of output.
changes in consumer demand in regional markets than
Bionor Inc. 67. Adopting flexible manufacturing technology to
E. Uvicon Inc. will be better prepared to produce a wide variety of end products results in:
accommodate demands for local responsiveness than
Bionor Inc. A. increased setup times for complex equipment.
B. increased utilization of individual machines.
63. Which of the following statements is true about C. reduced quality control.
minimum efficient scale of output? D. increased unit cost of products.
E. diseconomies of scale.
A. With lesser utilization of capital equipment, the
chances of a firm realizing economies of scale increases. 68. Which of the following is an objective of lean
B. A plant must avoid operating at the minimum production?
efficient scale of output to realize all major plant-level
scale economies.
A. Reducing the quality of a product to keep unit E. It adds to the cost structure of a firm.
costs low
B. Reducing setup times for complex equipment 73. Flexible manufacturing technologies help a
C. Replacing customized production with mass company achieve mass customization, which increases
production its _____.
D. Decreasing utilization of individual machines
through scheduling A. cost structure
E. Increasing the level of minimum efficient scale of B. waste
output C. customer responsiveness
D. learning effects
69. Mass customization reconciles the two goals of: E. externalities

A. mass production and long production runs. 74. Amber Engineers Inc. wants to be able to
B. standardization and economies of scale. customize products for different national markets and in
C. high fixed costs and single production facility. turn increase its customer responsiveness. However, the
D. low cost and product customization. fixed costs associated with its production are high.
E. local responsiveness and decentralized Hence, these functions will be performed most
production. efficiently if Amber Engineers Inc.:

70. Which of the following is an implication of a A. sets up a production facility that is well suited for
mass production system? mass production.
B. establishes multiple manufacturing facilities in
A. It results in short production runs each major national market.
B. It fails to realize economies of scale C. increases each manufacturing unit's minimum
C. It reduces the number of defects and eliminates efficient scale of output.
waste. D. adopts flexible manufacturing technologies to
D. It helps to accommodate consumer preferences help achieve mass customization.
for product diversity E. locates its production unit in countries that have
E. It creates massive inventories that have to be drastic fluctuations in exchange rates.
stored in large warehouses.
75. Flexible manufacturing technologies enable
71. A _____ includes a grouping of various types of companies to:
machinery, a common materials handler, and a
computer to control the production of a family of parts A. establish multiple manufacturing facilities in each
or products. major national market.
B. build large inventories.
A. specialized asset C. achieve product standardization across markets.
B. dynamic capability D. increase their work in progress.
C. turnkey project E. produce customized products without a
D. flexible machine cell significant cost penalty.
E. just-in-time inventory
76. _____ refers to the production of a variety of
72. Which of the following is a consequence of using end products at a unit cost that could once be achieved
flexible machine cells? only through bulk production of a standardized output.

A. It fails to adapt to the production of different A. Lean production

products. B. Just-in-time
B. It generally results in stockpiles of partly finished C. Mass customization
products. D. Specialized asset
C. It improves capacity utilization and reduces E. Dynamic capability
wastes.
D. It increases setup time for complex equipment.
77. Which of the following statements is true of C. They tend to be inexpensive.
flexible manufacturing technologies? D. There is great pressure to produce these products
in multiple locations close to major markets.
A. The idea of manufacturing in each major market E. These products gain weight as raw materials get
is becoming attractive due to these technologies. processed during transportation.
B. They fail to produce multiple models from the
same line. 82. Which of the following is true of products with
C. They are used to reconcile the goals of large high value-to-weight ratios?
volumes and standardized output.
D. They decrease the utilization of individual A. They are expensive to transport.
machines. B. They tend to increase in weight after processing
E. They allow firms to customize products to C. They tend to be restricted under trade barriers.
national differences at a single facility. D. They are expensive and do not weigh very much.
E. They have a low inventory turnover.
78. Technological factors are making it feasible for
firms to concentrate manufacturing facilities at optimal 83. Which of the following products is best
locations. The major brakes on this trend are: manufactured in multiple locations close to major
markets to reduce transportation costs?
A. differences in endowment factors.
B. transportation costs and trade barriers. A. Pharmaceuticals
C. rising national differences in consumer tastes and B. Petroleum products
preferences. C. Books
D. growing free trade areas and democracy. D. Magazines
E. declining fluctuations in exchange rates. E. Electronics

79. A product's value-to-weight ratio affects location 84. Which of the following holds true for products
decision primarily because of its influence on: with low value-to-weight ratios?

A. transportation costs. A. They are relatively expensive.

B. shelf life. B. They do not weigh very much.
C. work-in-progress. C. Their transportation costs account for a very
D. inventory turnover. small percentage of total costs.
E. capacity utilization. D. It is advisable to manufacture them in multiple
locations close to major markets.
80. Two product factors impact location decisions. E. Examples of these products are electronic
They are the product's value-to-weight ratio and: components and pharmaceuticals.

A. whether the product serves universal needs. 85. Which of the following statements is true of
B. the product’s life cycle. industrial products such as steel?
C. the product’s packaging.
D. the availability of flexible manufacturing A. They serve needs that are the same all over the
technology. world.
E. whether the product is produced using B. They have drastic national differences in
environmental friendly methods. consumer taste and preference.
C. The need for local responsiveness for these
81. Which of the following is true of high value-to- products is more than consumer products.
weight ratio products? D. It makes sense to produce these products in
multiple locations close to major markets.
A. They tend to have greater weight than other E. A plant must operate at the highest minimum
products. efficient scale of output for these products.
B. Their transportation costs account for a very
small percentage of total costs.
86. Which of the following is true of a product that E. Silver Times Inc. customizes heavy machines
serves universal needs? without the use of flexible manufacturing technologies.

A. It becomes necessary to customize the product to 90. When is decentralization of manufacturing

suit small consumer groups. facilities most appropriate?
B. It becomes necessary to accommodate demands
for local responsiveness. A. When the product serves universal needs
C. It increases the attractiveness of concentrating B. When exchange rates are expected to remain
production at an optimal location. relatively stable
D. It is difficult to serve national differences in C. When the product's value-to-weight ratio is high
consumer taste and preference. D. When there are few trade barriers
E. It is attractive to globally disperse production to E. When the production technology has low
all major markets. minimum efficient scale

87. Concentration of production makes most sense 91. Which of the following firms should concentrate
when: its production in a decentralized location?

A. trade barriers are low. A. Univion Inc. operates in an industry where

B. the product’s value-to-weight ratio is low. national differences in political economy and culture have
C. important exchange rates are volatile. a substantial impact on its cost of production.
D. flexible manufacturing technology does not exist. B. Saturn Inc. operates in an industry where
E. the production technology has low fixed costs. volatile fluctuations in important exchange rates are
expected.
88. When should a firm concentrate its production C. Brew Technology manufactures industrial
facilities in a centralized location? machines and equipment that serve universal needs.
D. Gold Dreams Inc. customizes jewelry in precious
A. When the production technology has a low metal and stones with the aid of flexible manufacturing
minimum efficient scale technologies.
B. When the production technology has low fixed E. Uniton Inc. uses a production technology that has
costs high fixed costs and high minimum efficient scale.
C. When important exchange rates are expected to
remain relatively stable 92. Which of the following is a step taken by
D. When flexible manufacturing technologies are automobile companies in situations where either
not available centralization or decentralization of production is not
E. When the product’s value-to-weight ratio is low feasible?

89. Which of the following firms should concentrate A. Outsourcing production to developing countries
its production in a centralized location? B. Inshoring production into the home country
C. Selling product patents and technology to
A. Jupiter Inc. operates in an industry where the competitors
fixed costs are high and services of supporting industries D. Refraining from international trade
are of prime importance. E. Establishing top-to-bottom manufacturing
B. Star Goal Inc. manufactures consumer products operations
like processed food, apparel, and cosmetics for which
national differences in consumer taste and preference are 93. Which of the following is a hidden cost to basing
wide. production in a foreign location?
C. Uranious Inc. operates in an economy where
volatile fluctuations in exchange rates are frequently A. Low employee turnover
expected. B. Low labor costs
D. Earth Ventures Inc. is a mining company that C. Poor product quality
exports iron ore—a product with low value-to-weight D. Expensive higher education system
ratio—to various countries. E. Low inventory turnover
 D. Local managers should not be empowered to
94. Which of the following is the initial reason for enhance their factories strategic standing within the
the establishment of a foreign production facility? corporation.
E. The strategy opposes the empowerment of local
A. Employee turnover is high. managers to enhance their factories strategic standing
B. Product quality is low. within the corporation.
C. Inventory turnover is low.
D. Exchange rate fluctuations are high. 98. The flow of skills and product offerings from
E. Labor costs are low. foreign subsidiary to home country and from foreign
subsidiary to foreign subsidiary is known as _____.
95. Which of the following is a result of pressure
from the headquarters of a company to customize a A. dumping
product to the demands of consumers A. centers B. reverse mentoring
that do not generate valuable knowledge. C. cultural relativism
B. globally dispersed centers of excellence. D. global learning
C. liabilities that add to the cost structure of the E. learning effects
company.
D. sweatshops where unskilled labor churns out low- 99. Due to the upward migration in the strategic role
cost goods. of foreign production sites, they are now viewed as:
E. low quality manufacturing centersin a particular
nation at a foreign production site?
A. centers that do not generate valuable knowledge.
A. Development of additional capabilities B. globally dispersed centers of excellence.
B. Centralization of production activities C. liabilities that add to the cost structure of the
C. Long production runs of standardized output company.
D. Low demand for local responsiveness. D. sweatshops where unskilled labor churns out low-
E. Basing production facilities in a single location. cost goods.
E. low quality manufacturing centers.
96. Which of the following is a source of
improvement in the capabilities of foreign factories? 100. Which of the following statements is true about
make-or-buy decisions?
A. The need to manufacture a product that serves
universal needs A. Make-or-buy decisions are applicable only to
B. Market stagnation in the country in which the physical products and not service activities.
factory is located B. Historically, most outsourcing decisions have
C. Apathy of the headquarters of a company toward involved the manufacture of physical products.
the foreign production facility C. Information technology companies in the United
D. Abundance of advanced factors of production in States are testing code in-house and outsourcing the code
the nation in which the factory is located writing process.
E. Decline in the education level of the country's D. Domestic businesses do not suffer from problems
population where the factory is located regarding outsourcing decisions.
E. Volatile exchange rate movements complicate
97. Which of the following is true according to the outsourcing decisions.
transnational strategy?
101. The Maroon Apparel company controls the
A. Foreign facilities are viewed as nothing more weaving, dyeing, cutting, and sewing of its merchandise.
than low-cost production facilities. Apart from these activities, it also manufactures
B. Valuable knowledge resides only in a firm’s buttons, zips, buckles, and other accessories for its
domestic operations. apparel. This is done in order to exercise tight control
C. Foreign sites can take the lead role for the design over its manufacturing processes and to reduce
of products to serve important regional markets. production costs. This strategy of the company is known
as _____.
 B. It facilitates the transfer of proprietary product
A. vertical integration technology.
B. unrelated diversification C. It increases the number of subunits in an
C. horizontal integration organization.
D. mass customization D. It eliminates the need to invest in specialized
E. conglomerate diversification assets.
E. It prevents a firm from maintaining flexibility.
102. Which of the following is a recent trend among
international businesses regarding make-or-buy 106. A firm should make a component internally
decisions? rather than contracting it out to a supplier when:

A. Foreign facilities are considered nothing more
than low-cost production facilities.
B. Research and design operations are restricted to
home-country production facilities.
C. Manufacturing facilities are being based in each
major national market.
D. Firms are avoiding time-based competition with
each other.
E. Outsourcing decisions are expanding to embrace
the production of service activities.
103. A(n) _____ refers to an asset designed to
perform a specific task, whose value is significantly
reduced in its next-best use.
A. substantial investments in specialized assets can
be avoided.
B. the firm uses proprietary product technology
that helps in gaining competitive advantage.
C. it wants to reduce the number of subunits in the
organization.
D. the optimal location for manufacturing a product
is beset by political risks.
E. different tax regimes and exchange rate
movements increase the complexity of transfer pricing
decisions.
107. If a firm possesses proprietary product
technology, the best option for that firm would be to:

A. fixed asset A. manufacture the product in-house so that it

B. specialized asset does not lose its competitive advantage.
C. intangible asset B. outsource the production activities to
D. liquid asset independent suppliers in order to realize economies of
E. deferred asset scale.
C. merge with competitors to reduce investments on
104. Which of the following statements is true about technology.
specialized assets? D. share the technology to make the industry more
competitive.
A. The value of a specialized asset significantly E. transfer the technology to less developed
increases in its next-best use. countries.
B. When one firm must invest in specialized assets
to supply another, mutual dependency is created. 108. Which of the following refer(s) to skills of a
C. When substantial investments in specialized corporation that become more valuable over time
assets are required, firms prefer to contract it out to a through learning?
supplier.
D. A specialized asset is a flexible manufacturing A. Global learning
technology that can be put to multiple uses. B. Accrued interests
E. Using a specialized asset allows firms to switch C. Dynamic capabilities
their orders easily between suppliers. D. Learning effects
E. Universal needs
105. Which of the following is an argument that
supports vertical integration? 109. Which of the following is an advantage for a firm
that buys component parts from independent suppliers?
A. It makes planning, coordination, and scheduling
of adjacent processes easy.
A. It makes planning, coordination, and scheduling E. The greater the number of subunits in an
of adjacent processes easier. organization, the more problems controlling those units.
B. It protects a firms proprietary production
technology. 113. Which of the following is a disadvantage of
C. It facilitates investments in highly specialized outsourcing production to independent suppliers?
assets.
D. It allows a firm to maintain its flexibility by A. It makes it necessary for firms to invest in
switching orders between suppliers. specialized assets.
E. It provides the opportunity to build dynamic B. It reduces the strategic flexibility of a firm by
capabilities in production activities. limiting its ability to adapt during changes in exchange
rates.
110. Which of the following is a disadvantage of C. It increases the risk of suppliers expropriating a
vertical integration? firm's proprietary product technology for their own use.
D. It increases the bureaucratic inefficiencies and
A. It fails to protect a firm's proprietary product costs associated with transfer pricing decisions.
technology. E. It makes it difficult to achieve coordination in an
B. Firms lose out on the opportunities to build organization by increasing the number of subunits in it.
dynamic capabilities.
C. It is difficult to determine appropriate prices for 114. The government of Lithaya placed a large order
goods transferred to subunits within a firm. for buses with Blue Ace Inc., a manufacturing company
D. It fails to facilitate investments in highly in Lodesia. In return, it asks the company to subcontract
specialized assets. some work to Lithayan manufacturers. This is an
E. It does not allow a firm to exercise tight control example of a(n) _____ in international business.
over its production process.
A. consortium agreement
111. Which of the following can a vertically B. cartel arrangement
integrated firm that buys its components from C. offset agreement
independent suppliers avoid? D. monopoly arrangement
E. collective bargaining agreement
A. Problems associated with transfer pricing
decisions 115. Which of the following statements is true about
B. The risk of losing its proprietary product strategic alliances with suppliers?
technology to competitors
C. The risk of losing out on the opportunities to A. In strategic alliances, the firm-supplier
enhance its dynamic capabilities relationship remains market mediated and terminable if
D. Being dependent on suppliers to invest in the supplier fails to perform.
specialized assets B. There is nothing as trust between the firm and its
E. Responding to changes in exchange rates and suppliers in strategic alliances.
trade barriers C. Strategic alliances are short-term relationships
that benefit only the independent suppliers.
112. Which of the following is true of vertical D. In a strategic alliance the benefits arising from
integration? investments in specialized assets and vertical integration
are lost.
A. It does not provide long-term competitive E. A firm that enters long-term alliances is
advantage. expanding its strategic flexibility by committing to its
B. A firm risks losing its proprietary product alliance partners.
technology to competitors.
C. A firm can leverage its dynamic capabilities to 116. Which of the following is a drawback of entering
produce a range of elegantly designed products. into strategic alliances with independent suppliers?
D. Substantial investments in specialized assets are
required to manufacture a component. A. The firm loses out on many of the benefits arising
from investments in specialized assets.
B. The strategic relationship between a firm and 121. _____ refers to a logistics system designed to
each of its essential suppliers is not market-mediated. deliver parts to a production process as they are needed,
C. The firm risks giving away key technological not before.
know-how to a potential competitor.
D. It cannot be terminated even if the supplier fails A. Inventory information system
to perform. B. Basket trading system
E. They are short-term relationships in which firms C. Buffer stock system
have stronger bargaining power than their suppliers. D. Just-in-time inventory system
E. Real-time processing system
117. The arrangement of strategic alliances with
suppliers was pioneered by the: 122. The basic philosophy behind just-in-time (JIT)
inventory systems is to:
A. retail industry of America.
B. large auto companies of Japan. A. economize on inventory holding costs.
C. large electronics firms of Germany. B. reduce inventory turnover.
D. information technology companies of India. C. create a buffer stock of inventory.
E. large scale manufacturing units of China. D. reduce costs by reducing quality.
E. increase the total working capital requirement.
118. Which of the following is a disadvantage of a
firm that enters long-term alliances? 123. Which of the following is true about firms using
just-in-time (JIT) inventory system?
A. It may lose the ability to realize economies of
scale. A. A company is more likely to have excess unsold
B. It does not have the authority to terminate the inventory that it has to write off against earnings.
alliance if partners fail to perform. B. Parts enter the manufacturing process
C. It loses the capability to capture the benefits of immediately; they are not warehoused.
vertical integration. C. It is difficult to spot and fix defective inputs.
D. It may limit its strategic flexibility by the D. The amount of working capital a company needs
commitments it makes to its alliance partners. to finance inventory increases.
E. It risks losing opportunities to build on its skills E. A firm has ample buffer stock of inventory.
and capabilities.
124. Which of the following increase(s) under just-in-
119. Which of the following is an objective of time (JIT) inventory system?
logistics?
A. Amount of working capital for inventory
A. Increase the cost of value creation B. Inventory turnover
B. Manage firms global supply chain at a low cost C. Number of defective parts
C. Reduce inventory turnover D. Inventory holding costs
D. Reduce a firm's customer responsiveness E. Storage costs
E. Increase inventory holding costs
125. A major cost saving from just-in-time inventory
120. Which of the following was pioneered by systems comes from:
Japanese firms during that country’s remarkable
economic transformation during the 1960s and 1970s? A. a shift in focus away from quality.
B. increasing productivity of workers.
A. Lean production C. speeding up inventory turnover.
B. Flexible manufacturing technology D. creating a buffer stock of inventory.
C. Dynamic capabilities E. writing off excess unsold inventory against
D. Just-in-time inventory systems earnings.
E. Global learning
126. Under a more traditional system as opposed to a A. flexible manufacturing technology
just-in-time inventory system, warehousing parts for B. lean production
weeks before they are used: C. computer-aided manufacturing
D. electronic data interchange
A. reduces the total working capital required by a E. just-in-time inventory systems
firm.
B. allows many defective parts to be produced 131. Which of the following allows suppliers,
before a problem is recognized. shippers, and the purchasing firm to communicate with
C. results in a near error-free production process. each other via the Internet with no time delay?
D. reduces the costs related to inventory holding.
E. reduces the need to write off excess unsold A. Electronic data interchange system
inventory against earnings. B. Data warehousing system
C. Batch processing system
127. The drawback of a just-in-time inventory system D. Skills inventory system
is that it: E. Just-in-time inventory system

A. increases the total capital required by a firm. 132. Geminia System, manufacturer of car
B. leaves a firm without a buffer stock of inventory. components, wants to set up a system that will help in
C. increases inventory holding costs, such as sending invoices to its customers once orders for input
warehousing and storage costs. supply are placed. Which of the following should the
D. is less efficient than traditional system in spotting company use to perform this function?
and fixing defective inputs.
E. lowers a company’s profitability as measured by A. Computer-aided design system
return on capital invested. B. Lean production
C. Just-in-time inventory system
128. Which of the following is a consequence of using D. Electronic data interchange
just-in-time inventory systems? E. Social networking

A. It slows down inventory turnover. 133. Which of the following is a consequence of an

B. It increases inventory holding costs. electronic data interchange system?
C. It increases the amount of working capital a firm
needs. A. Increased in production costs
D. It can help firms improve product quality. B. Reduction in paperwork between suppliers,
E. It does not allow defective inputs to be spotted shippers, and the purchasing firm
immediately. C. Helps a firm centralize materials management
decisions
129. One way to reduce the risks associated with a D. Decrease in flexibility and responsiveness of the
global supply chain that operates on just-in-time supply system
principles is to: E. Leaves a firm without a buffer stock of inventory

A. depend on one supplier for an important input.
B. outsource the production of inputs only to
advanced countries.
C. hold an excess buffer stock of inventory.
D. source inputs from several suppliers located in
different countries.
E. avoid using electronic data interchange.
130. Firms now typically use _____ via the Internet to
coordinate the flow of materials into manufacturing,
through manufacturing, and out to customers.
134. Which of the following is a result of using
electronic data interchange systems?
A. It helps a firm decentralize materials
management decisions to the plant level.
B. It helps achieve longer productions runs in
manufacturing units.
C. It excludes customers from the system.
D. It helps firms in reducing their inventory turnover.
E. It delays the realization of economies of scale.
135. Which of the following has caused proprietary
software solutions to implement electronic data
interchange systems obsolete?

A. Just-in-time inventory system

B. Flexible machine technology
C. The Internet
D. Dynamic capabilities
E. Social Networking