Chapter 1

Introduction to international marketing

TRUE/FALSE

1. International marketing is the process of planning and conducting transactions across national borders to create
exchanges that satisfy the objectives of individuals and organisations.

ANS: T PTS: 1 DIF: Easy REF: International marketing defined

2. In the definition of international marketing, the major foundation of this process is the planning and conducting of
transactions across national borders to create exchanges that satisfy the objectives of individuals and
organisations.

ANS: T PTS: 1 DIF: Easy REF: International marketing defined

3. In international marketing, the basic principles of marketing still apply, but their applications, complexity and
intensity may vary substantially.

ANS: T PTS: 1 DIF: Easy REF: International marketing defined

4. Even though a firm operates in the international marketplace, it still cannot separate its activities by content and
context.

ANS: F PTS: 1 DIF: Difficult REF: Globalisation drivers

5. The binding effect of the global linkages created by world trade (on countries, institutions and individuals) was
first widely recognised during the Second World War.

ANS: F PTS: 1 DIF: Difficult REF: Globalisation drivers

6. International marketing is a tool used to obtain improvement of one’s present position and retains the basic
marketing tenets of ‘satisfaction’ and ‘exchange’.

ANS: T PTS: 1 DIF: Easy REF: International marketing defined

7. International marketing creates an interdependence that makes a country like Australia more affluent but also
more vulnerable.

ANS: T PTS: 1 DIF: Difficult REF: Globalisation drivers

8. The global market imposes increasingly tight limits on national economic regulation and sovereignty.

ANS: T PTS: 1 DIF: Moderate REF: Globalisation drivers

9. While Asia has grown in importance as an export market for Australia, the UK still remains the most important
export market for this country.

ANS: F PTS: 1 DIF: Moderate REF: Globalisation drivers

10. A firm can only build and strengthen its competitive position in the international marketplace if it does not
transfer its knowledge around the globe.

ANS: F PTS: 1 DIF: Moderate REF: Opportunities and challenges in

international marketing

11. Currency flows and exchange rates have a greater effect on trade than do government monetary policies.

ANS: T PTS: 1 DIF: Moderate REF: Globalisation drivers

12. In the international areas of social responsibility and ethics, the international marketer is faced with a
multicultural environment with differing expectations and often inconsistent legal systems when it comes to
monitoring environmental pollution, maintaining safe working conditions, copying technology or trademarks or
paying bribes.

ANS: T PTS: 1 DIF: Easy REF: Environmental factors

13. All of the key difficulties encountered in doing business internationally are marketing problems.

ANS: F PTS: 1 DIF: Moderate REF: Global linkages

14. A differentiation strategy takes advantage of the marketer’s real or perceived uniqueness in elements such as
design or after-sales service.

ANS: T PTS: 1 DIF: Moderate REF: The strategic planning process

15. Merchandise trade statistics, in particular, overemphasise production and understate intellectual property from
design to brand.

ANS: T PTS: 1 DIF: Moderate REF: What is international marketing?

16. The four BRIC countries are Brazil, Russia, Indonesia and China. These countries had their first formal meeting
in 2009.

ANS: F PTS: 1 DIF: Moderate REF: Globalisation drivers

17. Chinese consumers tend to be less demanding and are not willing to pay more for higher-quality products. Thus,
this leads to serious differences between Westerners and Chinese consumers.

ANS: F PTS: 1 DIF: Moderate REF: Globalisation drivers

18. According to the text, the environment is broken down into four major components: economic, trade institutions
and trade policy, political and legal, and cultural.

ANS: T PTS: 1 DIF: Moderate REF: Environmental factors

19. Trading blocs encourage trade relations between their members, but through their rules and standards, and the
incentives they provide for mutual trade, they also affect the trade and investment flows of non-member countries.

ANS: T PTS: 1 DIF: Moderate REF: Global linkages

 20. Firms increasingly understand that many of the key difficulties encountered in doing business internationally are
marketing problems.

ANS: T PTS: 1 DIF: Easy REF: Opportunities and challenges in

international marketing

MULTIPLE CHOICE

1. Which of the following is not one of the forms of international marketing defined in the text?

A. Government-owned operations
B. Licensing
C. Joint ventures
D. Wholly owned subsidiaries

ANS: A PTS: 1 DIF: Moderate REF: International marketing defined

2. Which of the following statements is not true when describing international transactions?

A. Marketing internationally needs to be pursued, often aggressively.

B. Those who do not participate in the transaction are still exposed to the changing influences of international
marketing.
C. International marketing can be as much art as science.
D. The international marketer recognises the changing nature of transactions but is not part of the exchange.

ANS: D PTS: 1 DIF: Moderate REF: International marketing defined

3. Which of the following trading blocs does not exist?

A. NAFTA in North America

B. European Union in Europe
C. ASEAN Free Trade Area (AFTA) in Asia
D. Bilateral trade agreements between China and India

ANS: D PTS: 1 DIF: Moderate REF: Global market factors

4. ____________refers to the capability of attracting and influencing all stakeholders, whether through energetic
brands, heroic missions, distinctive talent development or an inspirational corporate culture.

A. Hard power
B. Soft power
C. Influential power
D. Media power

ANS: B PTS: 1 DIF: Difficult REF: The strategic planning process

5. Which of the following has traditionally been a domestic issue and is now an international issue?

A. Geographic boundaries of cities

B. The flow of water through dam diversion tunnels
 C. Applications for government subsidies
D. Agriculture and farm policies affecting imports and exports

ANS: D PTS: 1 DIF: Difficult REF: Globalisation drivers

6. Which country has had the most dramatic growth in exports in the period 1990–2004?

A. Japan
B. India
C. USA
D. China

ANS: B PTS: 1 DIF: Moderate REF: Globalisation drivers

7. Traditionally, trade flow determined currency flows and therefore the level of the exchange rate. The exchange
rate is now determined by:

A. currency flows.
B. trade levels.
C. domestic policy.
D. wholesalers who take possession of the product prior to sale.

ANS: A PTS: 1 DIF: Difficult REF: Globalisation drivers

8. Generally, the strategic business unit (SBU) is the unit around which decisions are based. In practice, SBUs
represent groupings organised around market similarities based on:

A. needs or wants to be met.

B. end-user customers to be targeted.
C. the product or service used to meet the needs of specific customers.
D. All of these choices

ANS: D PTS: 1 DIF: Difficult REF: Globalisation drivers

9. A ___________ is defined by its emphasis on a single industry segment, within which the orientation may be
toward either low cost or differentiation. ________ is characterised by a company offering products or services at
a lower cost than the competition. A _____________ is industry-wide or focused on a single segment and takes
advantage of the marketer’s real or perceived uniqueness in elements such as design or after-sales service.

A. differentiation strategy; cost leadership; focus strategy

B. differentiation strategy; low-price leadership; focus strategy
C. focus strategy; cost leadership; differentiation strategy
D. price leadership; cost leadership; differentiation strategy

ANS: C PTS: 1 DIF: Moderate REF: Globalisation drivers

10. All of the following are characteristics of the first stage of the global marketing evolution of a company, except:

A. Entry is constrained by a lack of funding (domestic growth still priority investment), so entry is low-cost
B. The risk tends to be minimised by entering close markets (geographically, culturally and economically)
C. The entry is based on core products with technical superiority
D. The objective is to achieve economies of scope

ANS: D PTS: 1 DIF: Moderate REF: Domestic policy repercussions

11. In regards to Australian exporters, which of the following is incorrect?

A. Ninety per cent of Australian exporters have fewer than 50 employees.

B. There is a relatively even spread between Australian export firms involved in consumer and industrial markets.
C. Approximately half of Australian exporters operate in fewer than five export markets.
D. Australian SMEs are responsible for 30% of Australian exports.

ANS: D PTS: 1 DIF: Difficult REF: Opportunities and challenges in

international marketing

12. Which of the following events helped identify global linkages, causing the world to realise that the systems of
product development, distribution and consumption are intertwined and related?

A. The worldwide oil crisis of 1970

B. Gulf War One and Gulf War Two
C. The Second World War
D. The opening of the Suez Canal

ANS: A PTS: 1 DIF: Moderate REF: Globalisation drivers

13. The marketing manager’s task is to plan and execute programs that will ensure a long-term competitive advantage
for the company. This includes determining of a specific target market and:

A. developing a uniform currency worldwide.

B. marketing management.
C. looking at occupants, objects, occasions and objectives.
D. testing markets.

ANS: B PTS: 1 DIF: Moderate REF: The strategic planning process

14. The emergence of technology has created new markets for companies. Which of the following represents an
example of this new market tendency?

A. The construction of convenience stores that replace service stations.

B. Listing of ingredients on the side panel labels of products distributed worldwide.
C. Newspapers being distributed online as opposed to physically on newsprint.
D. Storage facilities rented just on time.

ANS: C PTS: 1 DIF: Moderate REF: Globalisation drivers

15. By erecting barriers, charging tariffs, designing quotas and implementing other import regulations, governments
have attempted to:

A. popularise bureaucratic movement and entice more individuals into government service.
B. restrict the impact of global trade and financial flows.
C. increase income into the government.
D. capitalise on technology and enforce worldwide standards.

ANS: B PTS: 1 DIF: Difficult REF: Globalisation drivers

16. One way to guard against market saturation of a product is to:

A. lower interest rates.

B. delay introduction of a new product.
C. personalise the message to the customer.
D. lengthen or rejuvenate product life cycles in other countries.

ANS: D PTS: 1 DIF: Difficult REF: Globalisation drivers

17. It has been proposed that markets that reflect a high degree of __________ with respect to marketing mix
variables could be grouped into segments and thereby targeted with a largely __________ marketing strategy.

A. heterogeneity; standardised
B. differentiation; stable
C. homogeneity; standardised
D. instability; variable

ANS: C PTS: 1 DIF: Moderate REF: Segmentation

18. A _________ is a local company that has assets that gives it a competitive advantage only in its home market.

A. extender
B. dodger
C. contender
D. defender

ANS: D PTS: 1 DIF: Difficult REF: The strategic planning process

19. Firms and industries that are not participating in the world market:

A. recognise that isolation is possible.

B. will become participants in global business affairs anyway.
C. will be better able to react to competition from abroad in the domestic market.
D. are only reactive participants in the domestic market.

ANS: B PTS: 1 DIF: Moderate REF: Global linkages

20. __________________has long been the mantra in the marketing world.

A. ‘Think locally, act globally’

B. ‘Think globally, act locally’
C. ‘Think globally, act globally’
D. ‘Think regionally, act globally’

ANS: B PTS: 1 DIF: Easy REF: Future insights

21.Production has become more efficient as a result of:

A. ‘just on time’ warehousing.

B. the internet.
C. cross-sourcing.
D. newly created niche markets.

ANS: C PTS: 1 DIF: Moderate REF: International marketing defined

22. All of the following are part of the BRIC countries, except:

A. China
B. Russia
C. Brazil
D. Indonesia

ANS: D PTS: 1 DIF: Easy REF: Globalisation drivers

23. To achieve success in the art of international marketing, it is necessary for a firm to be firmly grounded in:

A. the language and aesthetics of any cultural group targeted.

B. the cultural differences in the expanded client base.
C. the six ‘p’s of international marketing.
D. the scientific aspects of international marketing.

ANS: D PTS: 1 DIF: Moderate REF: International marketing defined

24. All of the following statements are correct, except:

A. Observing changes and analysing how best to incorporate them in the international marketing mission are the
bread and butter of the international marketer.
B. The frequent changes are precisely what make international marketing so fascinating to those who are active in
the field.
C. If the international environment were constant, there would be little challenge.
D. In thinking about marketing objectives, plans, and programs, marketers will have to prioritise the
international market over the domestic market.

ANS: D PTS: 1 DIF: Moderate REF: Future insights

25. World trade has made:

A. information easier to gather, manipulate, analyse and disseminate.

B. the pressure to gather information lessen.
C. information easier to gather and disseminate.
D. the price of information more easily manipulated.

ANS: A PTS: 1 DIF: Easy REF: Globalisation drivers

26. In the past two decades:

A. the role of primary commodities in world trade has dropped.

B. the volume of services in world trade has stabilised.
C. the importance of manufactured goods in world trade has decreased.
D. there has been a decrease in world trade.

ANS: A PTS: 1 DIF: Moderate REF: Globalisation drivers

27. A lowering of interest rates will cause:

A. domestic consumers to be happier.

B. national capital account creation.
C. an outflow of money from the country.
D. domestic consumers to be happier and an outflow of money from the country.

ANS: D PTS: 1 DIF: Moderate REF: Globalisation drivers

28. According to the text, the factors of the population that also play a role in determining how a place fits into global
economic affairs include:

A. skills and qualifications.

B. culture, race and religion.
C. natural resources, skills and qualifications.
D. traditions, history and culture.

ANS: A PTS: 1 DIF: Easy REF: Globalisation drivers

29. Many of the characteristics of a place relate to four natural attributes; namely:

A. geological characteristics, terrain, hydrology and climate.

B. time, environment, water and population.
C. position, context, rotogravure and agriculture.
D. prehistoric, historic, post-genealogical and genealogical.

ANS: A PTS: 1 DIF: Moderate REF: Globalisation drivers

30. What types of hydrology affect terrain?

A. Rainfall, snowfall and hail

B. Rivers, lakes and other bodies of water
C. Canals, sewer systems and reservoirs
D. Precipitation, weather and climate

ANS: B PTS: 1 DIF: Moderate REF: Globalisation drivers

31. According to the text, which groups of the Australian population generally move out of cities to coastal strips for
a ‘sea change’?

A. Double income families with no children

B. Double income families with at least two children
 C. Professionals, managers, executives and directors
D. Wealthier residents and the ‘baby boomers’

ANS: D PTS: 1 DIF: Moderate REF: Segmenting

32. Halting destruction of forests in the Amazon Basin, selective harvesting of hardwoods and other products from
natural forest, and a restaurant refusing to purchase beef raised on pastures that are established by clearing forests
are all examples of what?

A. Concerns about the viability of environmental constructs

B. Concerns about environmental quality
C. The clustering of people-centred incidents in the natural environment
D. Global companies taking advantage of social responsibility awareness

ANS: B PTS: 1 DIF: Moderate REF: The strategic planning process

33. The role of advanced technology and its effect on international marketing is even more apparent:

A. with respect to advances in communications systems.

B. in the need for places to adapt to changing transportation systems.
C. when a city is favourably located along transportation lines.
D. when movement provides a structure for different places to relate to each other.

ANS: A PTS: 1 DIF: Difficult REF: Globalisation drivers

34. For a long time, _________, ________, ________, ________, and very occasionally Japan, have been the only
serious builders in the world to produce large cruise ships.

A. Italy; France; Germany; Finland

B. Italy; Greece; Spain; Portugal
C. United States; Canada; Germany; Norway
D. Norway, Finland; Italy; France

ANS: A PTS: 1 DIF: Moderate REF: Challenge us

SHORT ANSWER

1. Why is international marketing important to the growth of global and domestic companies?

ANS:
International marketing is the process of planning and conducting transactions across national borders to create
exchanges that satisfy the objectives of individual organisations. Global linkages have made possible investment
strategies and marketing alternatives that offer tremendous opportunities for companies. To benefit from the
opportunities and deal with the adversities of international trade, companies need to adopt the international
marketing concept. In any case, international marketing cannot be ignored; its inevitability means that firms
cannot adopt an isolationist attitude: they must embrace international marketing in order to survive.

PTS: 1 DIF: Moderate REF: Globalisation drivers

 2. What is your understanding of ‘Think globally, act locally’?

ANS:
‘Think globally, act locally’ has long been the mantra in the marketing world. While we are unlikely to see a
major shift in this thinking, the balance between global marketing and local marketing has taken on new meaning
in the 21st century. A major driver behind the precarious balance between global and local has been technology. In
particular, the internet has created a ‘flat world’. Customising for local markets has become more difficult as
online viewers access information originating in various countries.

PTS: 1 DIF: Moderate REF: Future insights

3. Briefly describe the four processes of marketing.

ANS:
The actual process of marketing consists of four stages: analysis, planning, implementation and control. Analysis
begins with collecting data on the eight Os and using various quantitative and qualitative techniques of marketing
research. Planning refers to the blueprint generated to react to and exploit the opportunities in the marketplace.
Implementation is the actual carrying out of the planned activity. Control mechanisms occur concurrently with
implementation.

PTS: 1 DIF: Moderate REF: The strategic marketing process

Chapter 2

The economic environment

TRUE/FALSE

1. NIEs, or newly industrialising economies, cover places like Hong Kong and Taiwan.

ANS: T PTS: 1 DIF: Moderate REF: Market characteristics

2. OPEC is made up of 11 petroleum-exporting countries including Russia.

ANS: F PTS: 1 DIF: Difficult REF: Market characteristics

3. Despite an image of hopeless poverty, India has more middle-class consumers than Germany.

ANS: T PTS: 1 DIF: Moderate REF: The economic environment

4. Only 1 per cent of the world’s private investment goes to sub-Saharan Africa.

ANS: T PTS: 1 DIF: Difficult REF: Market characteristics

5. The more developed the economy, the more income distribution tends to converge towards the middle class.

ANS: T PTS: 1 DIF: Easy REF: Market characteristics

6. United Nations projections point to a population explosion, mainly in the developing nations.
 ANS: T PTS: 1 DIF: Moderate REF: Market characteristics

7. Japan has the third-largest GDP in the world, only behind the USA and China.

ANS: F PTS: 1 DIF: Moderate REF: The economic environment

8. Age distribution and life expectancy correlate heavily with the level of development of the market.

ANS: T PTS: 1 DIF: Moderate REF: Market characteristics

9. The GDP per capita of the USA is higher than the GDP per capita of Australia.

ANS: F PTS: 1 DIF: Easy REF: Market characteristics

10. Engel’s laws state that as a family’s income increases, the percentage spent on food will decrease but the
percentage spent on housing and household operations will remain roughly constant.

ANS: T PTS: 1 DIF: Moderate REF: Market characteristics

11. The countries that are part of the Group of Eight are Canada, France, Germany, Italy, Japan, Russia, UK and the
USA.

ANS: T PTS: 1 DIF: Easy REF: The economic environment

 12. China is economically developed in the east, north and west.

ANS: F PTS: 1 DIF: Moderate REF: Market characteristics

13. It is estimated that the total world population exceeded 15 billion people in 2012.

ANS: F PTS: 1 DIF: Easy REF: Market characteristics

14. Europe will show negative population growth for the next decades.

ANS: T PTS: 1 DIF: Moderate REF: Market characteristics

15. One factor behind the overall growth in households, and the subsequent decline in their average size, has been the
increase in the numbers of divorced and sole survivor households.

ANS: T PTS: 1 DIF: Moderate REF: Market characteristics

16. There is a close relationship between economic and social development and therefore many economic figures can
be used as social indicators.

ANS: T PTS: 1 DIF: Moderate REF: Impact of the social environment on

social development.

17. The Physical Quality of Life Index (PQLI) is a composite measure of the level of welfare in a country. It has two
major components only: life expectancy and infant mortality.

ANS: T PTS: 1 DIF: Easy REF: Impact of the social environment on

social development.

18. The world’s developing countries have the most to gain from economic alliances like AFTA and ANCOM.

ANS: T PTS: 1 DIF: Moderate REF: Regional economic integration.

19. In markets where urbanisation is recent and taking place rapidly, the marketer faces additional responsibility as a
change agent, especially when incomes may be low and the conditions for the proper use of products may not be
adequate.

ANS: T PTS: 1 DIF: Moderate REF: Regional economic integration

20. Since the recent GFC (global financial crisis), the World Trade Organization (WTO) is no longer the major, and
most comprehensive, trade facilitation entity.

ANS: F PTS: 1 DIF: Moderate REF: Regional economic integration

MULTIPLE CHOICE

1. When assessing a market’s potential an international marketer should consider:

A. income, infrastructure, information and internationalisation.

B. population, income, consumption patterns and geography.
C. income, infrastructure and information.
 D. consumption patterns, infrastructure and topology.

ANS: B PTS: 1 DIF: Moderate REF: Market characteristics

2. Which of the following statements is correct?

A. The increased urbanisation of many markets has not distinctly changed consumption patterns.
B. Urban areas provide larger groups of consumers who may be less receptive to marketing efforts.
C. The concept of urbanisation has different meanings depending on where one operates.
D. None of the above

ANS: C PTS: 1 DIF: Difficult REF: Market characteristics (Population)

3. According to the textbook, the newly industrialised countries (NICs) are:

A. Singapore, Malaysia, Thailand, Myanmar, Cambodia and the Philippines.

B. Singapore, Taiwan, Thailand, Korea, Chile and Mexico.
C. Singapore, Taiwan, Korea, Hong Kong, Bengali and Malacca.
D. Singapore, Taiwan, Korea, Hong Kong, Brazil and Mexico.

ANS: D PTS: 1 DIF: Moderate REF: The economic environment.

4. BRIC is an acronym for:

A. Brazil, Russia, India and China.

B. Burma, Russia, India and China.
C. Britain, Russia, India and China.
D. Brazil, Russia, India and Czech Republic.

ANS: A PTS: 1 DIF: Moderate REF: The economic environment.

5. In 2012 _________, _________ and ________ had the three highest GDP per capita in the world.

A. Luxembourg; Australia; Norway

B. Norway; Switzerland; Sweden
C. Norway, Qatar; United Arab Emirates
D. Luxembourg; Qatar; Norway

ANS: D PTS: 1 DIF: Moderate REF: The economic environment.

6. The international marketer can use which of the following classification as a planning guide?

A. Very low family incomes: subsistence economies tend to be characterised by rural populations in which
consumption relies on personal output or barter. Some urban centres may provide markets.
B. Very low, very high family incomes: some countries exhibit strongly bimodal income distributions. The
majority of the population may live barely above the subsistence level, but there is a strong market in urban
centres and a growing middle class. The affluent are truly affluent and will consume accordingly.
C. Low, medium and high family incomes: industrialisation produces an emerging middle class with increasing
disposable income.
D. All of these choices
ANS: D PTS: 1 DIF: Moderate REF: The economic environment.
 7. What is the free trade referred to as AFTA:

A. ASEAN Free Trade Area.

B. the American Free Trade Area.
C. the Agreement on Freight, Tariffs, and Access.
D. the Australian Free Trade Agreement.

ANS: A PTS: 1 DIF: Difficult REF: Regional economic integration

8. An international marketer should consider which of the following general country variables?

A. Population, infrastructure, geography and foreign involvement in the economy

B. Population, GDP, geography, manufacturing as a percentage of national product, infrastructure and per capita
income
C. Population, GNP, geography, production as a percentage of national product, infrastructure and per capita
income.
D. Population, GDP, geography, production as a percentage of national product, infrastructure and per capita
income.

ANS: A PTS: 1 DIF: Difficult REF: Market characteristics

9. Which of the following nations had the highest debt in 2010?

A. Bulgaria
C. China
B. Brazil
D. Russian Federation

ANS: D PTS: 1 DIF: Moderate REF: Market characteristics

10. According to the textbook, how many people in the world live on less than US$1500 a year?

A. 4 billion
B. 4 million
C. 75 million
D. 1 billion

ANS: A PTS: 1 DIF: Moderate REF: The world economic pyramid

11. In 2011 all of the following countries were among the top 10 economies in the world, except:

A. Canada
B. Brazil
C. Italy
D. France

ANS: A PTS: 1 DIF: Moderate REF: The economic environment.

12. A true economic union:

A. integrates economic policies between members.

B. allows the free movement of goods, services, but not the movement of the factors of production across borders.
C. prevents fixed exchange rates in the common currency.
D. is like the Southern African Customs Union.

ANS: A PTS: 1 DIF: Difficult REF: Regional economic integration

13. The main dimensions of a market can be captured by considering variables such as:

A. those relating to the population and its various characteristics, education, infrastructure, geographical features
and foreign involvement.
B. those relating to the population and its various characteristics, infrastructure, geographical features of the
environment, and foreign involvement in the country.
C. those relating to the population, race, religion, education, infrastructure, geographical features and foreign
involvement.
D. those relating to the population, race, religion, gender, education, infrastructure, geographical features, foreign
involvement and environmental concerns.

ANS: B PTS: 1 DIF: Difficult REF: Market characteristics

14. The free trade area is:

A. the least restrictive form of economic integration among nations.

B. not actually possible in Asia.
C. where all barriers to trade among member countries are removed.
D. the least restrictive form of economic integration among nations and where all barriers to trade among member
countries are removed.

ANS: D PTS: 1 DIF: Easy REF: Regional economic integration

15. What is the Physical Quality of Life Index (PQLI)?

A. A composite measure of the level of welfare in a country

B. A composite measure of the GDP per capita of a country times the ‘world happiness index score
C. A composite measure of the level of life satisfaction of the population of a country
D. None of the above

ANS: A PTS: 1 DIF: Moderate REF: Impact of the economic environment on

social development.
16. Which of the following statements is false?

A. The World Trade Organization (WTO) is the major, and most comprehensive, trade facilitation entity, and with
the accession of Russia on 22 August 2012 it now encompasses all of the world’s significant economies.
B. Blocs are joining bigger blocs as in the case of the Asia Pacific Economic Cooperation (APEC), which brings
partners together from multiple continents (including NAFTA, ASEAN Free Trade Area and individual
countries such as Australia, China, Japan and Russia).
C. The World Trade Organization (WTO) is the major, and most comprehensive, trade facilitation entity, and with
the accession of China on 22 August 2012 it now encompasses all of the world’s significant economies.
D. Economic integration has been one of the main economic developments affecting world markets since the
Second World War.

ANS: C PTS: 1 DIF: Moderate REF: Regional economic integration

17. Debt crises:

A. reduce a nation’s buying power.

B. force imports down.
C. force exports up.
D. reduce a nation’s buying power, force exports up and force imports down.

ANS: D PTS: 1 DIF: Moderate REF: Market characteristics

18. Infrastructure that is critically important to evaluating marketing operations abroad includes:

A. transportation, communications and energy.

B. marketing communications, financing, distributing and information.
C. land, road, air and water transportation networks.
D. All of these choices

ANS: D PTS: 1 DIF: Moderate REF: Market characteristics

19. All of the alternatives below are correct, except:

A. Differences in the degree of urbanisation of target markets in less-developed countries influence

international marketers’ product strategies.
B. If products are targeted only to urban areas, products need minimal adjustments, mainly to qualify them for
market entry.
C. When targeting national markets, firms may need to make extensive adaptations to match more closely the
expectations and the more narrow consumption experiences of the rural population.
D. All of these choices

ANS: A PTS: 1 DIF: Difficult REF: Impact of the economic environment on

social development.

20. Inflation is a problem that may cause:

A. a government to invoke price controls.

B. higher profit situation for international marketers due to maximum prices being set.
C. increased investment activity in the region.
D. increases in production as wages are now comparatively cheaper.
 ANS: A PTS: 1 DIF: Moderate REF: Market characteristics

21. A country’s debt must be considered in terms of:

A. its size.
B. the ability of the country to service the debt, measured by export revenue earnings.
C. GNI of the country.
D. All of these choices

ANS: D PTS: 1 DIF: Moderate REF: Market characteristics

22. In which country is an urban area defined as a built-up area with at least 200 inhabitants with no more than 200
metres between houses?

A. Sweden
B. South Africa
C. Singapore
D. Sri Lanka

ANS: A PTS: 1 DIF: Easy REF: Market characteristics

23. Which is often used as a primary indicator for evaluation of purchasing power?

A. Purchasing power parities

B. Exchange rates
C. Per capita GNP
D. Per capita GDP

ANS: C PTS: 1 DIF: Difficult REF: Market characteristics

24. As regional economic integration occurs, the international marketer must make integration assessments and
decisions from four points of view:

A. Export quotas and tariffs, laws and regulations, size of the market and attractiveness of the market
B. Product differentiation, price advantage, distinctive competency and market compatibility
C. External analysis, internal analysis, strategy, and control and monitoring
D. Outcome of the change, change readiness, strategic response and company reorganisation

ANS: D PTS: 1 DIF: Difficult REF: Regional economic integration

25. International marketers can respond to a recession in the target market by:

A. temporarily abandoning the target market.

B. increasing marketing efforts.
C. decreasing the capitalisation rate.
D. temporarily abandoning the target market and increasing marketing efforts.

ANS: D PTS: 1 DIF: Easy REF: Market characteristics

26. Low rates of diffusion should be approached cautiously because they can signal a market opportunity or lack
thereof resulting from:

A. low income levels, use of a substitute product or lack of acceptance.

B. high income levels, use of a substitute product or lack of acceptance.
C. low income levels, lack of substitute product or lack of acceptance.
D. high income levels, lack of substitute product or lack of acceptance.

ANS: A PTS: 1 DIF: Moderate REF: Market characteristics

27. What affects the ability of both industrial customers and consumers to buy and also introduces uncertainty into
both the marketer’s planning process and consumers’ buying habits?

A. Higher purchasing power parities

B. Stagnation
C. Deflation
D. Inflation

ANS: D PTS: 1 DIF: Moderate REF: Market characteristics

28. A household:

A. describes all the persons who occupy a housing unit.

B. describes all the related persons who occupy a housing unit.
C. is a variable important to marketers in the European Union because it is increasing in size.
D. describes all the persons who occupy a housing unit and is a variable important to marketers in the European
Union because it is increasing in size.

ANS: A PTS: 1 DIF: Moderate REF: Market characteristics

29. Purchasing power is a function of:

A. prices, income, fixed commitments and government credit policy.

B. prices, debt levels, income and fixed commitments.
C. income, credit availability, prices and debt levels.
D. income, prices, savings and credit availability.

ANS: D PTS: 1 DIF: Moderate REF: Market characteristics

30. Product saturation:

A. means the same as product diffusion.

B. means the percentage of households that own a particular product.
C. means the same as product diffusion and the percentage of households that own a particular product.
D. is the percentage of product production that cannot be sold after all consumers have already bought the
product.

ANS: C PTS: 1 DIF: Easy REF: Market characteristics

 31. Which of the following indicators relates to the overall industrialisation of the market and can be used effectively
by suppliers of industrial products and services?

A. Steel consumption, cement production and electricity production

B. Steel production, cement consumption and electricity consumption
C. Steel consumption, gold production and electricity production
D. Steel production, gold consumption and electricity consumption

ANS: A PTS: 1 DIF: Difficult REF: Market characteristics

32. Forms of economic integration in regional markets include:

A. economic unions and regional trade areas.

B. trading blocs and common markets.
C. economic unions and customs unions.
D. common external trade policies, harmonisation of economic policies and free trade areas.

ANS: C PTS: 1 DIF: Moderate REF: Regional economic integration

33. A ____________ the highest level of economic integration.

A. common market
B. economic union
C. Free Trade Area
D. customs union

ANS: B PTS: 1 DIF: Moderate REF: Regional economic integration

SHORT ANSWER

1. Discuss the movement towards regional trading agreements and the advantages and disadvantages of it to
international marketers.

ANS:
Students’ answers will vary both in length and complexity of issues tackled. A good answer will include what
regional trading agreements mean; the fact that they reduce restrictions in terms of trade and the movement of
factors of production; and the fact that they increase market size for any company within the trade area. It will
also discuss the inevitability of trade agreements (such as the European Union). Also likely is that companies
should endeavour to operate within as many regional trade areas as possible, restrictions on ‘outsiders’ are likely,
partners within a trade agreement/area are not likely to be ‘equal’ and trade agreements are inherently more
efficient.

PTS: 1 DIF: Moderate REF: Regional economic integration

2. Give some examples of how regional differences in China can have an impact on the consumption patterns of the
population.

ANS:
A complete answer should mention all the issues mentioned in the ‘International Marketplace 2.3’ on page 64 of
the textbook.
PTS: 1 DIF: Moderate. REF: Consumption patterns
 3. How have Australia and New Zealand benefited from the rapid rise of China and India as economic and market
powerhouses over the past 20 years?

ANS:
A good answer will discuss the size and increasing sophistication of these two markets, particularly in terms of the
number of middle-income earners in the two populations. The growth of these two markets has been stunning.
This has led to rises in the need for the commodities and farm produce that Australia and New Zealand can so
easily supply. Reference should also be made to the close proximity of these markets. A good answer may also
touch on the fact that traditional markets for Australia and New Zealand were closing (e.g. England) as a result of
the European Union.

PTS: 1 DIF: Moderate REF: Regional economic integration

Chapter 3

Trade institutions and trade policy

TRUE/FALSE

1. World Bank was designed to provide stability for the international monetary framework

ANS: F PTS: 1 DIF: Moderate REF: Transnational institutions affecting

world trade

2. It is quite unclear whether stringent economic rules and performance measures are equally applicable to all
countries seeking IMF assistance.

ANS: T PTS: 1 DIF: Moderate REF: Transnational institutions affecting

world trade

3. By August 2012, the WTO had 201 member ‘countries’.

ANS: F PTS: 1 DIF: Moderate REF: Transnational institutions affecting

world trade

4. The World Trade Organization (WTO) has its origins in the GATT.

ANS: T PTS: 1 DIF: Easy REF: Transnational institutions affecting

world trade

5. New Zealand has had a free trade agreement with China since 2008.

ANS: T PTS: 1 DIF: Moderate REF: The international marketplace 3.3

6. Australia refuses to negotiate a free trade agreement with China.

ANS: F PTS: 1 DIF: Moderate REF: The international marketplace 3.3

7. The more successful the WTO is, the more it may infringe on the sovereignty of nations.
 ANS: T PTS: 1 DIF: Moderate REF: Transnational institutions affecting
world trade

8. The original goal of the IMF was to provide for fixed exchange rates between countries.

ANS: T PTS: 1 DIF: Moderate REF: Transnational institutions affecting

world trade

9. Australia and New Zealand have experienced a significant increase in their share of world trade since 1948.

ANS: F PTS: 1 DIF: Moderate REF: Comparing international trade positions.

10. The WTO’s core mission is the facilitation of international trade and investment, while ensuring that an effective
forum exists to address concerns surrounding the core.

ANS: T PTS: 1 DIF: Difficult REF: Transnational institutions affecting

world trade

11. The International Bank for Reconstruction and Development is also known as the IMF.

ANS: F PTS: 1 DIF: Moderate REF: Transnational institutions affecting

world trade

12. Extreme economic poverty is defined as living on less than US$1.50 per day.

ANS: F PTS: 1 DIF: Moderate REF: Transnational institutions affecting

world trade

13. Economic blocs integrate the economic and political activities of nations.

ANS: T PTS: 1 DIF: Easy REF: Transnational institutions affecting

world trade

14. A Free Trade Agreement between the US and New Zealand is unlikely to happen.

ANS: T PTS: 1 DIF: Moderate REF: Transnational institutions affecting

world trade

15. The World Bank’s official name is the International Bank for Reconstruction and Development.

ANS: T PTS: 1 DIF: Moderate REF: Transnational institutions affecting

world trade

16. The availability of a large US domestic market and the relative distance to foreign markets resulted in US
manufacturers simply not feeling a compelling need to seek business beyond national borders.

ANS: T PTS: 1 DIF: Moderate REF: Comparing international trade positions.

17. The term ‘born global’ means that a firm has had an international commitment since its inception.
 ANS: T PTS: 1 DIF: Easy REF: The impact of trade and investment

18. Exporting activities allow a firm to achieve economies of scale but actually make the firm less efficient in
marketing terms.

ANS: F PTS: 1 DIF: Moderate REF: The impact of trade and investment

19. The United States has used ‘voluntary’ import restraints that are applied selectively against New Zealand.

ANS: T PTS: 1 DIF: Difficult REF: Policy responses to trade problems.

 20. Successful foreign competitiveness in international trade has resulted in major trade deficits for Australia, New
Zealand and the USA.

ANS: T PTS: 1 DIF: Moderate REF: The impact of trade and investment

MULTIPLE CHOICE

1. Which of the following WTO is not responsible for?

A. The General Agreement on Trade in Services (GATS)

B. Agreements on trade-related aspects of intellectual property rights (TRIPS) and trade-related investment
measures (TRIMS)
C. The administration of a broad variety of international trade and investment accords
D. Helping impoverished and developing nations

ANS: D PTS: 1 DIF: Easy REF: Transnational institutions affecting

world trade

2. Which of the alternatives represents a challenge for the IMF in the next years?

A. It is quite unclear whether stringent economic rules and performance measures are equally applicable to all
countries seeking IMF assistance.
B. New economic conditions that have not been experienced to date, such as the privatisation of formerly
centrally planned economies, may require different types of approaches.
C. The link between economic and political stability requires more and different considerations, therefore
magnifying but also changing the mission of the IMF.
D. All of these choices

ANS: D PTS: 1 DIF: Moderate REF: Transnational institutions affecting

world trade

3. How many countries are members of the World Trade Organisation?

A. 53 countries
B. 98 countries
C. 159 countries
D. 201 countries

ANS: B PTS: 1 DIF: Difficult REF: Transnational institutions affecting

world trade

4. The World Trade Organization has its origins in:

A. the COMECON agreement.

B. the GATT agreement.
C. the SAARC agreement.
D. the Maastricht Treaty.

ANS: B PTS: 1 DIF: Difficult REF: Transnational institutions affecting

world trade
5. Which of the following is not a market agreement?

A. Group of Eight
B. The Mercosur in Latin America
C. The Gulf Cooperation Council (GCC)
D. North American Free Trade Agreement (NAFTA)

ANS: A PTS: 1 DIF: Easy REF: Transnational institutions affecting

world trade

6. Which of the following is not in the list of Australia’s FTAs?

A. Thailand–Australia FTA
B. Australia–Chile FTA
C. Australia–Brazil FTA
D. Singapore–Australia FTA

ANS: C PTS: 1 DIF: Moderate REF: Transnational institutions affecting

world trade

7. The World Bank has had its effectiveness questioned because:

A. of a lack of global interest, inadequacy of information and ignorance of where and how to market
internationally.
B. it has not provided stability for the international monetary framework.
C. it has not played an important role in the stability of exchange rates.
D. All of these choices

ANS: A PTS: 1 DIF: Moderate REF: Transnational institutions affecting

world trade

8. Which of the following is not a reason why exports are important in a macroeconomic sense?

A. They bring in technology and skills.

B. They can affect currency values and the fiscal and monetary policies of governments.
C. They shape public perception of competitiveness.
D. They determine the level of imports a country can afford.

ANS: B PTS: 1 DIF: Easy REF: The impact of trade and investment

9. Which of the following has the highest trade per capita in the world?

A. China
B. Hong Kong
C. USA
D. Japan

ANS: B PTS: 1 DIF: Moderate REF: Comparing international trade positions.

10. An economic bloc is:

A. an integration of the economic and political activities of member nations.

B. a global cartel of nations enforcing economic rules among member states.
C. all of the competing nations in the same marketplace.
D. the goal of a global marketplace.

ANS: A PTS: 1 DIF: Difficult REF: Transnational institutions affecting

world trade

11. APEC is:

A. Association of Petroleum Exporting Countries

B. Asia Pacific Economic Cooperation
C. a control agreement between Australia and the Philippines
D. Australia Pacific Economic Cooperation

ANS: B PTS: 1 DIF: Moderate REF: Transnational institutions affecting

world trade

12. The classic predicament of poorer developing countries is:

A. high-tech, high-value-added products being imported.

B. high-tech, high-value-added products being exported.
C. exports begin mainly, or even exclusively, composed of processed raw materials.
D. exports begin mainly, or even exclusively, composed of unprocessed raw materials, with the high-tech, high-
value-added products being imported.

ANS: D PTS: 1 DIF: Easy REF: Policy responses to trade problems

13. The USA can run a very large trade deficit because:

A. of its political stability.

B. of its perceived economic security.
C. it is a preferred borrower.
D. of its political stability and its perceived economic security.

ANS: D PTS: 1 DIF: Easy REF: The international marketplace 3.3

14. Which of the following is not a result of a restriction of investment?

A. A denial of access to foreign capital and often innovation

B. A tightening up of credit markets
C. Higher interest rates
D. An increased willingness to adapt to changing world market conditions

ANS: D PTS: 1 DIF: Difficult REF: The impact of trade and investment
15. Which of the following statements is incorrect?

A. China represents a big threat to Australian companies as Australian companies are not competitive enough
to expand into China.
B. New Zealand’s free trade agreement with China was established in 2008.
C. Both Australia and New Zealand have seen a remarkable change in the direction of trade over the last half
century.
D. The White Paper addresses the rise of Asia and Australia’s response to it.

ANS: A PTS: 1 DIF: Moderate REF: The impact of trade and investment

16. Since the 1960s, US firms tended not to have an international outlook because:

A. the domestic market was large enough to ensure profits.

B. international marketing was considered risky and complicated.
C. the US had sufficient diversity of resources.
D. All of these choices

ANS: D PTS: 1 DIF: Easy REF: Policy responses to trade problems

17. Trade deficits:

A. indicate that a country, in its international activities, is producing more than it is consuming.
B. can be reduced by decreasing exports.
C. can be reduced by increasing exports.
D. can be reduced by increasing imports.

ANS: C PTS: 1 DIF: Moderate REF: Policy responses to trade problems

18. Which of the following is not a type of trade barrier?

A. Standards, testing, labelling and certification

B. Lack of intellectual property protection
C. Investment barriers
D. Government subsidies

ANS: D PTS: 1 DIF: Easy REF: Policy responses to trade problems

19. The foreign direct investment level:

A. by the US is still the highest of any country.

B. by China became the highest of any country after 2004.
C. into the US is low compared with the flow into China.
D. None of the above

ANS: A PTS: 1 DIF: Moderate REF: Policy responses to trade problems

20. Which of the following is not a reason why many countries provide export promotion assistance to their firms?

A. The national need to earn foreign currency

B. To encourage domestic employment
C. To increase domestic economic activity
D. The national need to import

ANS: D PTS: 1 DIF: Moderate REF: Policy responses to trade problems

21. What is the official Australian government source of information on trade policy?

A. Department of Foreign Affairs and Trade

B. Ministry of Foreign Affairs and Trade
C. Department of Export and Immigration
D. Ministry of Foreign Trade

ANS: A PTS: 1 DIF: Moderate REF: Policy responses to trade problems

22. Examples of trade barriers include:

A. import and export policies.

B. government procurement.
C. investment barriers and competitive practices.
D. intellectual property protection.

ANS: B PTS: 1 DIF: Moderate REF: Policy responses to trade problems

23. Methods of restricting trade include:

A. bon-tariff barriers.
B. voluntary restraints.
C. political will.
D. bon-tariff barriers and voluntary restraints.

ANS: D PTS: 1 DIF: Easy REF: Policy responses to trade problems

24. The world’s largest market is currently:

A. China
B. European Union
C. Commonwealth of Independent States
D. USA

ANS: D PTS: 1 DIF: Easy REF: A strategic outlook for trade and
investment policies
25. Protectionism is not the answer to enhancing world trade because:

A. it will force world trade to expand unsustainably.

B. it cannot increase productivity and competitiveness in the long run.
C. the increase in living standards is not sustainable in the long term.
D. None of the above

ANS: B PTS: 1 DIF: Moderate REF: A strategic outlook for trade and
investment policies

26. Which of the following statements is incorrect?

A. Australia and New Zealand are both trade-oriented, liberalised economies.

B. The USA is currently the world’s largest market, so American perspectives on trade policy are of great concern
and important for international marketers.
C. closer government–business collaboration is not seen as one key to enhanced competitiveness of the American
economy and corporations.
D. All the alternatives are correct.

ANS: B PTS: 1 DIF: Moderate REF: A strategic outlook for trade and
investment policies

27. Bilateral negotiations are:

A. always broad, covering a wide variety of products, services or investments.

B. between one exporting firm and a host nation.
C. carried out mainly between two nations.
D. useful for vertical movement on the international vertical supply chain.

ANS: C PTS: 1 DIF: Easy REF: A strategic outlook for trade and
investment policies

28. A broad-scale multilateral negotiation is when:

A. concessions can be traded off among countries.

B. there is a clearly identified winner and loser for each issue.
C. there are only two nations involved.
D. there is less chance for long-term success because no one wants to be the loser.

ANS: A PTS: 1 DIF: Moderate REF: A strategic outlook for trade and
investment policies

29. The balance of trade may be too far in the red – for instance, ________ – or there may be an embarrassingly high
surplus, such as __________.

A. USA; China
B. Australia; USA
C. Australia; New Zealand
D. Indonesia; China
ANS: D PTS: 1 DIF: Moderate REF: Policy responses to trade
problems
30. _________ are special because they can affect currency values and the fiscal and monetary policies of
governments, shape _______ perception of competitiveness and determine the level of _______ a country can
afford.

A. Imports; public; exports

B. Exports; organisational; imports
C. Exports; public; imports
D. Exports; brand; imports

ANS: C PTS: 1 DIF: Moderate REF: A strategic outlook for trade and
investment policies

31. In light of persistent ____________, growing ____________ and the tendency by some firms and industries to
seek legislative redress for failures in the marketplace, the US Congress in the past two decades has increasingly
been willing to provide the president with more powers to_________ trade.

A. trade deficits; FDI; restrict

B. trade surplus; foreign direct investment; encourage
C. trade deficits; FDI; restrict
D. trade surplus; foreign direct investment; encourage

ANS: A PTS: 1 DIF: Moderate REF: A strategic outlook for trade and
investment

32. US trade policy tends to be:

A. positive rather than reactive and ad hoc.

B. ignorant of the nation’s growing trade deficit.
C. formulated based on short-term domestic political considerations.
D. ignorant of the nation’s growing trade deficit and formulated based on short-term domestic political
considerations.

ANS: D PTS: 1 DIF: Easy REF: A strategic outlook for trade and
investment

33. Non-tariff barriers:

A. are more difficult to detect, prove and quantify than tariff barriers.
B. are less difficult to detect, prove and quantify than tariff barriers.
C. include preferential treatment for domestic bidders and government ‘buy domestic’ campaigns.
D. are more difficult to detect, prove and quantify than tariff barriers and include preferential treatment for
domestic bidders and government ‘buy domestic’ campaigns.

ANS: D PTS: 1 DIF: Moderate REF: Policy responses to trade problems

34. Export promotion assistance to firms is:

A. offered because of the need to earn foreign currency.

B. a distortion of profitability.
C. justifiable if it decreases market transparency.
D. All of these choices
 ANS: A PTS: 1 DIF: Moderate REF: Policy responses to trade problems

35. Which of the following statements is true?

A. Policy makers can’t sacrifice short-term achievements for long-term goals.

B. Thoughtful economic coordination will be required among the leading trading nations. Such coordination will
result in the increase of national sovereignty.
C. Policy makers must be willing to trade off short-term achievements for long-term goals.
D. The beneficiaries of trade and investment restraints are usually not clearly defined and have much to gain,
whereas the losers are much more visible.

ANS: C PTS: 1 DIF: Difficult REF: Future insights

SHORT ANSWER

1. Explain three types of trade barriers.

ANS: Students can choose three out of the options below to explain:
•  Import policies (e.g. tariffs and other import charges, quantitative restrictions, import licensing and
customs barriers).
•  Standards, testing, labelling and certification (including unnecessarily restrictive application of sanitary
and phytosanitary standards and environmental measures, and refusal to accept exporter’s self-certification of
conformance to foreign product standards). New Zealand complains that Australian restriction of apple
imports because of fire-blight is in fact a non-tariff barrier.
•  Government procurement (e.g. ‘buy national’ policies and closed bidding).
•  Export subsidies (e.g. export financing on preferential terms and agricultural export subsidies that
displace exports from more competitive countries in third-country markets). The Cairns Group, led by
Australia, campaigns about such practices, especially in the EU and USA.
•  Lack of intellectual property protection (e.g. inadequate patent, copyright and trademark regimes). This
has been a major issue in developing countries such as China.
•  Services barriers (e.g. limits on the range of financial services offered by foreign financial institutions,
regulation of international data flows and restrictions on the use of foreign data processing).
•  Investment barriers (e.g. limitations of foreign equity participation and on access to foreign government-
funded research and development programs, local content and export performance requirements, and
restrictions on transferring earnings and capital).
•  Anticompetitive practices with trade effects tolerated by foreign governments (including anticompetitive
activities of both state-owned and private firms that apply to services or to goods, and that restrict the sale of
products to any firm, not just to foreign firms that perpetuate the practices).
•  Trade restrictions affecting electronic commerce (e.g. tariff and non-tariff measures, burdensome and
discriminatory regulations and standards, and discriminatory taxation).

PTS: 1 DIF: Moderate REF: Policy responses to trade problems

2. What are the advantages and disadvantages of trade restrictions?

ANS:
A good answer would discuss the type of trade restrictions – voluntary, tariff and non-tariff – and short-term
versus long-term considerations. Political considerations are important here also. The relative size of competitors
in the marketplace is an issue: for example, protectionism is more of a difficulty for smaller competitors.
Efficiency of production also should be mentioned, along with protection for local industry and expertise,
financial considerations, ‘tit for tat’ retaliation, etc.

PTS: 1 DIF: Moderate REF: Policy responses to trade problems

 3. Consider the effects of export and import.

ANS:
Exports can affect currency values and the fiscal and monetary policies of governments, shape public perception
of competitiveness and determine the level of imports a county can afford. Increasing exports is a key way to
reduce trade deficits. Exports support the creation of jobs. Through exporting, firms can achieve economies of
scale and benefit from market diversification. Exporting also lets the firm learn from the competition, makes it
sensitive to different demand structures and cultural dimensions, and proves its ability to survive in a less-familiar
environment in spite of higher transaction costs. On the import side, firms become exposed to new competition,
which may offer new approaches, better processes or better products and services. As firms are forced to compete,
consumers in turn receive more choices, and quality is kept high while the price is kept low.

PTS: 1 DIF: Moderate REF: A strategic outlook for trade and investment

Chapter 4

The political and legal environment

TRUE/FALSE

1. Intellectual property rights (IPR) is not properly regulated by international laws.

ANS: T PTS: 1 DIF: Easy REF: Home country political and legal
environment

2. The Copenhagen Summit held in 2009 was seen a major success.

ANS: F PTS: 1 DIF: Moderate REF: Home country political and legal
environment

3. Violations of intellectual property rights do not occur in developed economies.

ANS: F PTS: 1 DIF: False REF: Home country political and legal
environment

4. The term ‘embargo’ refers to products that are packaged in one country one way and then altered to fit the
international marketplace in another country.

ANS: F PTS: 1 DIF: Difficult REF: Home country political and legal
environment

5. Trade sanctions have been used quite frequently and successfully in times of war or to address specific
grievances.

ANS: T PTS: 1 DIF: Moderate REF: Home country political and legal
environment

6. When the United Nations approves trade sanctions for a particular country, all countries must abide by this
decision although permanent members of the Security Council can veto efforts to impose sanctions.
 ANS: T PTS: 1 DIF: Moderate REF: Home country political and legal
environment

7. Export controls are primarily a US foreign policy instrument.

ANS: T PTS: 1 DIF: Moderate REF: Home country political and legal
environment

8. One reason that no systematic (trade) sanctioning policy developed in the United Nations was because ‘peace’ and
‘breach of peace’ are seldom perceived in the same way by all members.

ANS: T PTS: 1 DIF: Moderate REF: Home country political and legal
environment
 9. Since the US economy is so much larger than that of any other country, sanctions provide a way of inflicting great
damage, especially on small countries such as Cuba, Iraq and North Korea, without the USA itself suffering
commensurate pain or danger of retaliation.

ANS: T PTS: 1 DIF: Moderate REF: Home country political and legal
environment

10. An embargo and a trade sanction are two terms used interchangeably to mean a governmental action that distorts
the free flow of trade in goods, services or ideas for decidedly adversarial and political, rather than strictly
economic, purposes.

ANS: T PTS: 1 DIF: Moderate REF: Home country political and legal
environment

11. Sanctions remain contentious both in terms of efficacy and equity because they seldom achieve the stated
objectives, and they hurt the powerless and vulnerable rather than the elite.

ANS: T PTS: 1 DIF: Moderate REF: Home country political and legal
environment

12. ‘Grey market’ is another term meaning ‘parallel exporting’.

ANS: F PTS: 1 DIF: Moderate REF: Home country political and legal
environment

13. Economic sanctions can be used by the USA to extend political control over foreign companies operating abroad,
with or without the support of their local government.

ANS: T PTS: 1 DIF: Moderate REF: Home country political and legal
environment

14. Companies are automatically restricted from trading in items under the Wassenaar Arrangement because this is the
responsibility of participating states, which must proscribe prohibited items under their national laws.

ANS: F PTS: 1 DIF: Difficult REF: Home country political and legal
environment

15. Export control systems are designed to at least delay the acquisition of strategically important goods by enemies.

ANS: T PTS: 1 DIF: Easy REF: Home country political and legal
environment

16. According to the Transparency International Corruption perception index, Australia is the most transparent
country in the world.

ANS: F PTS: 1 DIF: Difficult REF: Host country political and legal
environment

17. Three major types of political risk can be encountered: ownership risk, tax risk and transfer risk.
 ANS: F PTS: 1 DIF: Moderate REF: Host country political and legal
environment

18. A boycott is the same as an anti-trust measure.

ANS: F PTS: 1 DIF: Moderate REF: Host country political and legal
environment

19. Expropriation is the seizure of foreign assets by a government with payment of compensation to the owners.

ANS: T PTS: 1 DIF: Moderate REF: Host country political and legal
environment

20. There is no enforceable body of international law in existence.

ANS: T PTS: 1 DIF: Moderate REF: Host country political and legal
environment

MULTIPLE CHOICE

1. All of the following statements are correct, except:

A. A key legal perspective that survives today is that of theocracy, which has faith and belief as its key focus and
is a mix of societal, legal and spiritual guidelines.
B. Common law is based on tradition and depends less on written statutes and codes than on precedent and
custom.
C. Code law is based on a comprehensive set of written statutes. Countries with code law try to spell out all
possible legal rules explicitly.
D. Sanitary and phytosanitary regulations can be used as a non-technical trade barrier.

ANS: D PTS: 1 DIF: Difficult REF: Host country political and legal
environment

2. Which of the following governmental activities are not of major concern to the international marketer?

A. National infrastructure programs

B. Embargoes or trade sanctions
C. Export and import controls
D. The regulation of international business behaviour

ANS: A PTS: 1 DIF: Easy REF: Home country political and legal
environment

3. Where do violations of intellectual property rights occur?

A. Anywhere someone infringes upon the rights of companies and individuals

B. In developing economies
C. In Asia, South America and Africa
D. Both B and C
ANS: A PTS: 1 DIF: Easy REF: Home country political and legal
environment
4. When goods enter a market in ways not desired by their manufacturers, this is known as:

A. embezzlement.
B. soft goods solicitation.
C. fortressing.
D. grey market.

ANS: D PTS: 1 DIF: Difficult REF: Home country political and legal
environment

5. Political risks are best described as any governmental actions or politically motivated events that:

A. suggest the firm is legally responsible for specific wrongdoings.

B. negatively affect the firm’s long-run profitability or value.
C. interfere with the personal safety of the firm's employees.
D. harm the firm’s capacity to meet consumer demands.

ANS: B PTS: 1 DIF: Moderate REF: Home country political and legal
environment

6. Which of the following is not a problem with the unilateral imposition of sanctions?

A. Typically they are unsuccessful in producing the desired result.

B. Sanctions make it more difficult or expensive for the sanctioned country to obtain goods, yet the purported
objective is almost never achieved.
C. The USA can apply diplomatic or commercial pressure to produce compliance by foreign countries and
companies.
D. In order to work, sanctions need to be imposed multilaterally.

ANS: C PTS: 1 DIF: Moderate REF: Home country political and legal
environment

7. Government actions that distort the free flow of trade in goods, services and ideas for decidedly adversarial and
political, rather than strictly economic, purposes are:

A. punitive and discriminatory.

B. controlled and erratic.
C. embargoes and trade sanctions.
D. unionised and secular.

ANS: C PTS: 1 DIF: Moderate REF: Home country political and legal
environment

8. Three major types of political risk can be encountered: ________ risk, which exposes property and life;
_________ risk, which refers to interference with the ongoing operations of a firm; and _______ risk, which is
mainly encountered when attempts are made to shift funds between countries.

A. ownership; operating; transfer

B. transfer; operating; ownership
C. ownership; transfer; operating
D. operating; ownership; transfer
 ANS: A PTS: 1 DIF: Moderate REF: Host country political and legal
environment

9. Which of the following statements about climate change is correct?

A. There is not much controversy about the causes and effects of climate change.
B. Greenwash is a strategy used by company that truly cares for the environment.
C. Locavores are people who only eat local food.
D. The effect of this environment is obvious and predictable.

ANS: C PTS: 1 DIF: Moderate REF: Panorama

10. When the United Nations votes on economic sanctions for a country:

A. only nations who are members of the UN can embrace it.

B. any permanent member of the Security Council can veto the sanctions.
C. all nations must comply.
D. a new set of rules must be written for the specific infractions.

ANS: B PTS: 1 DIF: Difficult REF: Home country political and legal
environment

11. Which of the following is not a determinant for the US export control system?

A. National security
B. Long-term demand
C. Foreign policy
D. Nuclear proliferation

ANS: B PTS: 1 DIF: Difficult REF: Home country political and legal
environment

12. Goods that one country exports to another country and that can have military and civilian uses are called:

A. mi-ci products.
B. strategic concerns.
C. conflict enhancement products.
D. dual-use items.

ANS: D PTS: 1 DIF: Moderate REF: Home country political and legal
environment

13. For the international marketer, which of the following restrictions may mean that the most efficient sources of
supply are not available because government restrictions restrict importation from those sources?

A. Import licences
B. Grey market activities
C. Export controls
D. Import controls
ANS: D PTS: 1 DIF: Moderate REF: Home country political and legal
environment
14. Which of the following is not a difference between functional lubrication and individual greed?

A. The amount for individual greed is usually a substantial amount in US dollars.

B. The express fee is small and standardised.
C. The express service is available to everyone, with few exceptions.
D. The express fee does not stay in the hands of the official who receives it but is passed on to others involved in
the processing of the documents.

ANS: A PTS: 1 DIF: Moderate REF: Host country political and legal
environment

15. Which of the following is not a type of political risk?

A. Ownership risk
B. Operating risk
C. Transfer risk
D. Currency risk

ANS: D PTS: 1 DIF: Easy REF: Host country political and legal
environment

16. The effect of politics on international marketing is determined by both the ________ political relations between
________ and home countries and the _________ agreements governing the relations among groups of countries.

A. unilateral; host; unilateral

B. bilateral; host; unilateral
C. bilateral; domestic economy; unilateral;
D. bilateral; host; multilateral

ANS: D PTS: 1 DIF: Moderate REF: The international environment

17. Dual-use products pose a problematic scenario for countries because:

A. most nations are not in the defence business.

B. it is hard for nations to agree on what is a military use and what is a civilian use.
C. all products cannot be screened by the United Nations.
D. trade embargoes disallow certain products to be used by major suppliers.

ANS: B PTS: 1 DIF: Moderate REF: Home country political and legal
environment

18. The seizure of foreign assets by a government with payment of compensation to the owners is referred to as:

A. expropriation.
B. confiscation.
C. transfer risk.
D. domestication.

ANS: A PTS: 1 DIF: Moderate REF: The international environment

19. A key legal perspective that has faith and belief as its key focus and is a mix of societal, legal and spiritual
guidelines is:

A. theocracy.
B. common law.
C. code law.
D. anti-dumping law.

ANS: A PTS: 1 DIF: Moderate REF: Host country political and legal
environment

20. Home countries may implement special laws and regulations to ensure that the international business behaviour of
their firms is conducted within the:

A. legal, moral and ethical boundaries considered appropriate.

B. city, county and state boundaries as defined by local governments.
C. social and cultural boundaries of the local government.
D. safety of the home nation’s federal laws.

ANS: A PTS: 1 DIF: Difficult REF: Home country political and legal
environment

21. When firms refuse to do business with someone, often for political reasons, this is called:

A. image tarnishing (anti-trust action).

B. speculation.
C. boycotting.
D. substantiation.

ANS: C PTS: 1 DIF: Moderate REF: Host country political and legal
environment

22. In which legal systems do courts adopt precedents and customs to fit the cases, allowing the marketer a better idea
of the basic judgment likely to be rendered in new situations?

A. Theocracy
B. Common law
C. Code law
D. Anti-dumping law

ANS: C PTS: 1 DIF: Moderate REF: Host country political and legal
environment

23. Bribery can be seen as:

A. a reasonable way of doing business internationally.

B. corruption.
C. a crucial business pledge.
D. a reasonable way of doing business internationally and a crucial business pledge.
ANS: B PTS: 1 DIF: Moderate REF: Host country political and legal
environment
24. Which of the following was not mentioned in the text as a critical issue for international marketers in the areas of
general standards of behaviour and ethics?

A. Global warming
B. Saving whales
C. Pollution
D. Moral behaviour

ANS: B PTS: 1 DIF: Moderate REF: Host country political and legal
environment

25. Firms that engage in questionable practices may be subject to all but which of the following?

A. Outward economic compromise

B. Public scorn
C. Consumer boycotts
D. Investor scrutiny

ANS: A PTS: 1 DIF: Easy REF: Host country political and legal
environment

26. Which of the following is not considered a political risk?

A. Deflation
B. Changes in tariffs
C. Expropriation of assets
D. Restriction in repatriation of profits

ANS: A PTS: 1 DIF: Moderate REF: Host country political and legal
environment

27. Coups have occurred in all of the following countries except:

A. Armenia
B. Ghana
C. Ethiopia
D. Venezuela

ANS: A PTS: 1 DIF: Difficult REF: Host country political and legal
environment

28. When a country transfers the ownership of the foreign firm from the firm to itself (the country), this is known as:

A. obfuscation.
B. fraternalism.
C. confiscation.
D. asset seizure.

ANS: C PTS: 1 DIF: Moderate REF: Host country political and legal
environment
29. When a government demands partial transfer of ownership and management responsibility and imposes
regulations to ensure that a large share of the product is locally produced and a larger share of the profit is
retained in the country, this is called:

A. bribery.
B. generalisation.
C. domestication.
D. pinpointing.

ANS: C PTS: 1 DIF: Moderate REF: Host country political and legal
environment

30. Which of the following is incorrect?

A. The USA has developed into an increasingly litigious society in which institutions and individuals are quick to
take a case to court.
B. Japan, for example, has particularly strict health standards that affect the import of pharmaceuticals.
C. Sanitary and Phytosanitary (SPS) regulations are of particular concern to exporters of foodstuffs, such as
Australia and New Zealand.
D. The enforcement of laws may not have a different effect on national and on foreign marketers.

ANS: D PTS: 1 DIF: Difficult REF: Host country political and legal
environment

31. Which of the following is not a major area in which nations attempt to govern the international marketing
activities of its firms?

A. Boycotts
B. Ethics
C. Corruption
D. Distribution systems

ANS: D PTS: 1 DIF: Moderate REF: Summary

32. Which of the following statements is correct?

A. Germany is at the top of the Transparency International Corruption Perceptions index.

B. Brazil and India are near the bottom of the Transparency International Corruption Perceptions index.
C. New Zealand is one of the most transparent countries in the world.
D. None of the above

ANS: C PTS: 1 DIF: Moderate REF: Host country political and legal
environment

33. One thorny issue that can cause difficulties for companies seeking to utilise FTAs is ___________. These are a
crucial aspect of FTAs, because they determine what products are covered.

A. Rules of imports
B. Rules of origin
C. Rules of destination
D. Rules of law
 ANS: B PTS: 1 DIF: Moderate REF: The international environment

34. __________ is based on tradition and depends less on written __________ than on precedent and custom. On the
other hand, __________ is based on a ______________ set of written _________.

A. Code law; statutes and codes; common law; non-comprehensive; statutes

B. Common law; statutes and codes; code law; non-comprehensive; statutes
C. Common law; statutes and codes; code law; comprehensive; statutes
D. Civil law; statutes and codes; common law; comprehensive; statutes

ANS: C PTS: 1 DIF: Difficult REF: The international environment

SHORT ANSWER

1. Why are the political and legal environments in foreign countries important to the international marketer?

ANS:
Compliance in the foreign laws is mandatory in order to do business abroad successfully. Such laws can control
exports and imports both directly and indirectly, and can also regulate the international business behaviour of
firms, particularly in the areas of boycotts, antitrust, corruption and ethics. In addition, the interpretation and
application of regulations can sometimes lead to conflicting and even misleading results. Failure to anticipate the
political and/or legal influences can be the undoing of an otherwise successful business venture.

PTS: 1 DIF: Moderate REF: Host country political and legal environment

2. On occasion, the international marketer may be caught between clashing home and host country laws. How
should the marketer handle such a situation?

ANS:
This is the essence of the legal and political problems facing the international marketer. What to do? The
requirements of both governments need to be met – even if those requirements are not compatible! The
international marketer may need to conduct a dialogue with each government in order to seek a compromise
solution. Alternatively, managers can encourage their home government to engage in government-to-government
negotiations to settle the dispute. The firm also can seek redress in court.
In any case, a good manager will understand the country in which the firm operates (as comprehensively as the
home country) so that he or she is able to work within the existing parameters and can anticipate and plan for
changes that may occur.

PTS: 1 DIF: Difficult REF: Host country political and legal environment

3. Explain the implications of climate change to international marketers.

ANS:
Answers will vary, but students should take under consideration the information discussed in the Panorama case
of this chapter.

PTS: 1 DIF: Moderate REF: Panorama

Chapter 5
The cultural environment

TRUE/FALSE

1. Australia is an example of a high context culture.

ANS: F PTS: 1 DIF: Moderate REF: Culture defined

2. Verbal language is much more relevant for an international marketer than non-verbal language.

ANS: F PTS: 1 DIF: Easy REF: Elements of culture

3. To take advantage of global markets, marketers are required to standardise all communication and product
offerings to blend the cultural and social norms of differing peoples into one branded strategy.

ANS: F PTS: 1 DIF: Difficult REF: Elements of culture

4. Culture is primarily passed on by parents to their children, as well as by social organisations, special-interest
groups, the government, schools and the church.

ANS: T PTS: 1 DIF: Moderate REF: Culture defined

5. Cultural dimensions frameworks are considered overrated.

ANS: F PTS: 1 DIF: Moderate REF: Cultural analysis

6. Culture is defined as an integrated system of innate behaviour patterns that are distinguishing characteristics of
the members of any given society.

ANS: F PTS: 1 DIF: Moderate REF: Culture defined

7. Acculturation is the process of extending one’s own culture across boundaries to influence, if not dominate, a
competing culture in another global market. It is otherwise known as cultural imperialism.

ANS: F PTS: 1 DIF: Moderate REF: Culture defined

8. Japan and Saudi Arabia are examples of high context cultures.

ANS: T PTS: 1 DIF: Moderate REF: Culture defined

9. According to the textbook, the process of acculturation is one of the keys to success in international operations.

ANS: T PTS: 1 DIF: Moderate REF: Culture defined

10. In most cultures, people find in religion a reason for being and legitimacy in the belief that their lives are supreme
in comparison to the lives of others.

ANS: F PTS: 1 DIF: Difficult REF: Elements of culture

11. In low context cultures context is at least as important as what is actually said. The speaker and the listener rely on
a common understanding of the context.

ANS: F PTS: 1 DIF: Moderate REF: Elements of culture

12. Values are shared beliefs or group norms that have been internalised by individuals.

ANS: T PTS: 1 DIF: Moderate REF: Elements of culture

13. The international manager’s task is to distinguish relevant cross-cultural and intracultural differences and then to
isolate potential opportunities and problems.

ANS: T PTS: 1 DIF: Moderate REF: Elements of culture

14. The sensitivity and adaptation to cultural elements by an international firm depends on the firm’s level of
involvement in the market and the product or service marketed.

ANS: T PTS: 1 DIF: Moderate REF: Sources of cultural knowledge

15. Focus groups are segments of management who gather to write opinions based on their perception of the market
and stem from the ‘jury of executive opinion’ research that was conducted in the 1950s.

ANS: F PTS: 1 DIF: Difficult REF: Sources of cultural knowledge

16. International business can be considered a change agent.

ANS: T PTS: 1 DIF: Moderate REF: Culture defined

17. Education, either formal or informal, plays a major role in the passing on and sharing of culture.

ANS: T PTS: 1 DIF: Moderate REF: Culture defined

18. Groups that provide the values and attitudes of society and become influential in shaping behaviour are called
‘libraries of commerce’.

ANS: F PTS: 1 DIF: Moderate REF: Elements of culture

19. Experimental information is obtained from others through communication, research and education.

ANS: F PTS: 1 DIF: Moderate REF: Sources of cultural knowledge

20. Forward-translation is translating of a foreign language version back to the original language by a different person
from the one who made the first translation.

ANS: F PTS: 1 DIF: Easy REF: Elements of culture

MULTIPLE CHOICE

1. Which of the following is correct?

A. According to Hofstede, culture is the ‘collective programming of the mind’.

B. Culture is inherently conservative, resisting change and fostering continuity.
C. Culture is defined as an integrated system of learned behaviour patterns that are distinguishing characteristics
of the members of any given society. It includes everything that a group thinks, says, does and makes – its
customs, language, material artefacts and shared systems of attitudes and feelings.
D. All of these choices

ANS: D PTS: 1 DIF: Moderate REF: Culture defined

2. Marketers who bring about cultural change through dramatic campaigns without the adaptation of culture-specific
elements can be accused of:

A. post-cultural antagonism.
B. bilateral modernism.
C. linguistic lethargy.
D. cultural imperialism.

ANS: D PTS: 1 DIF: Difficult REF: Culture defined

3. Which of the following is not true?

A. The official language in Brazil is Spanish.

B. Singapore has English as its only official language.
C. Venezuelans speak French.
D. None of the above

ANS: D PTS: 1 DIF: Difficult REF: Elements of culture

4. Which of the following is incorrect about language?

A. Since the territory’s return to China in 1997, the Hong Kong government is promoting the use of Cantonese
rather than English as the language of commerce.
B. Language also has to be understood in its historical context.
C. Language is only a communication medium.
D. All of these choices

ANS: C PTS: 1 DIF: Difficult REF: Elements of culture

5. In regards to time flexibility, which one of the following is correct?

A. Time is never flexible.

B. Deadlines have the same meaning in several countries.
C. In business meeting in South America it is perfectly acceptable to arrive late for a meeting.
D. In the USA ‘time is money’.

ANS: C PTS: 1 DIF: Difficult REF: Elements of culture

 6. Which of the following religions has the largest following among world religions?

A. Islam
B. Catholicism
C. Christianity
D. Confucianism

ANS: C PTS: 1 DIF: Moderate REF: Elements of culture

7. The roles of language in international marketing do not include:

A. understanding the cultural similarities in the host country.

B. information gathering and evaluation.
C. access to local society.
D. communications within the corporate family or with channel members.

ANS: A PTS: 1 DIF: Moderate REF: Elements of culture

8. The textbook provided five key areas of non-verbal language. These do not include:

A. Language
B. Time and space
C. Material possessions
D. Friendship patterns

ANS: A PTS: 1 DIF: Moderate REF: Elements of culture

9. Which of the following is false?

A. One toy seller explained that playing with Mattel’s golden-haired, skimpily dressed Barbie may lead girls to
grow up into women who reject Iranian values.
B. Japanese youth display extremely positive attitudes towards Western goods.
C. Guanxi is a set of exchanges of favours to establish trust.
D. None of the above

ANS: D PTS: 1 DIF: Moderate REF: Elements of culture

10. Which of the following is an example of gifts that should be avoided?

A. During the Chinese New Year it considered polite to give modest gifts, such as coffee and pens.
B. Sweets would be good gifts for the Hindu Diwali festival.
C. For Oesibo (Japan) gifts should come in sets of four or nine.
D. All these gifts should be avoided.

ANS: C PTS: 1 DIF: Difficult REF: Elements of culture

11. The basic economic infrastructure elements of a society are:

A. buildings, ports and communications.

B. transportation, energy and communications.
C. food production, water supply and roads.
 D. government, food production and water supply.

ANS: B PTS: 1 DIF: Moderate REF: Elements of culture

12. Which of the following represents a challenge for search engine marketing?

A. Achieving consistent branding across cultures

B. That search engines have traditionally given preference to sites with local top-level domain names
C. Finding the right skilled language service provider
D. All of these choices

ANS: D PTS: 1 DIF: Difficult REF: The international marketplace 5.2

13. Which religion has been characterised as a code of conduct rather than a religion?

A. Protestantism
B. Confucianism
C. Islam
D. Buddhism

ANS: B PTS: 1 DIF: Moderate REF: Elements of culture

14. How can marketers determine the education levels of a culture?

A. By using secondary data on literacy rates and enrolment in secondary or higher education
B. By observing how well the people of the culture speak
C. By comparing primary school entry statistics with university entry statistics
D. Through self-reported linguistic analysis (SRLA)

ANS: A PTS: 1 DIF: Moderate REF: Elements of culture

15. The use of visual aids rather than printed materials is recommended in cultures with:

A. high concentrations of Chinese, since their language is interpretive.

B. high levels of illiteracy.
C. high-end technology including computers and kiosks.
D. government regulation.

ANS: B PTS: 1 DIF: Difficult REF: Elements of culture

16. ______________ is the division of a particular population into classes.

A. Casting
B. Population division
C. Social stratification
D. Ethnic division

ANS: C PTS: 1 DIF: Moderate REF: Elements of culture

17. Which of the following is not a part of basic economic infrastructure?

 A. Transportation
B. Energy
C. Monetary reserve
D. Communication systems

ANS: C PTS: 1 DIF: Moderate REF: Elements of culture

18. Managers and employees are arranged in roles that make some subordinate to others. This process of arranging
people in the workforce into these roles is called:

A. priority differentiation.
B. subclass analysis.
C. explicit role classification.
D. social organisation.

ANS: D PTS: 1 DIF: Difficult REF: Elements of culture

19. The concept of _________ knowledge is broad and multifaceted. ____________ knowledge is obtained from
others through communication, research and education. ______________ knowledge, on the other hand, can be
acquired only by being involved in a culture other than one’s own.

A. cultural; Objective; Experimental

B. social; Experimental; Factual
C. cultural; Experimental; Objective
D. cultural; Experimental; Factual.

ANS: A PTS: 1 DIF: Difficult REF: Sources of cultural knowledge

20. Which of the following is not a part of social infrastructure?

A. Housing
B. Health
C. Educational systems
D. National publications

ANS: D PTS: 1 DIF: Moderate REF: Elements of culture

21. Primary reference groups do not include:

A. family.
B. trade organisations.
C. co-workers.
D. local communities.

ANS: B PTS: 1 DIF: Difficult REF: Elements of culture

22. The universal ground rules that managers acquire as a result of involvement in the international arena are called:

A. cultural generalities.
B. meta-knowledge.
C. global immersion rules.
D. universal algorithms.

ANS: B PTS: 1 DIF: Moderate REF: Elements of culture

23. Which of the following is not one of Hofstede’s cultural dimensions?

A. Power distance
B. Uncertainty avoidance
C. Humane orientation
D. Gender-role orientation

ANS: C PTS: 1 DIF: Moderate REF: Cultural analysis

24. Which of the following is incorrect?

A. In order to incorporate the lower power distance within the market, services should be informal and friendly.
B. Western countries highly regard individualism, so promotional appeals should be relevant to the individual.
C. Australia and New Zealand have almost identical scores across all five Hofstede dimensions.
D. Japan has a high uncertainty avoidance, which means that Japanese consumers are willing to take more risks.

ANS: D PTS: 1 DIF: Difficult REF: Cultural analysis

25. Which of the following is the term used to describe the belief that one’s own culture is superior to others?

A. Unilateral fundamentalism
B. Ethnocentrism
C. Imperialism
D. Projected culturalism

ANS: B PTS: 1 DIF: Moderate REF: Cultural analysis

26. The Chinese concept of guanxi is:

A. a set of exchanges of favours to establish trust.
B. a trust system used by Chinese criminals.
C. the belief that business partnerships can be built on marriage between business heirs.
D. the preference to use family members as business partners.

ANS: A PTS: 1 DIF: Moderate REF: Elements of culture

27. The increase in international activity of global firms has increased the need for:

A. gender role analysis.

B. political capital.
C. cultural sensitivity training.
D. negotiation skills.

ANS: C PTS: 1 DIF: Moderate REF: The training challenge

28. Which of the following is one way in which companies have tried to avoid the training problem inherent in being
an international company?

A. Hiring nationals to staff overseas operations

B. Standardising all procedures in English operations
C. Hiring staff with overseas business experience
D. Hiring nationals to staff overseas operations and hiring staff with overseas business experience

ANS: D PTS: 1 DIF: Easy REF: The training challenge

29. Why has management in global firms instituted internal cultural education programs?

A. To improve the ability to employ locals in overseas posts

B. To identify task orientation and cultural acceptance
C. To foster cultural sensitivity and acceptance of new ways of doing things
D. To follow government mandates

ANS: C PTS: 1 DIF: Easy REF: The training challenge

30. The objective of formal training in international and intercultural competence is to foster the four critical
characteristics of:

A. sensitivity, patience, preparedness and language.

B. preparedness, sensitivity, patience and flexibility.
C. language, patience, preparation and sensitivity.
D. patience, sensitivity, language and patience.

ANS: B PTS: 1 DIF: Difficult REF: The training challenge

31. Which of the following is a form of training that is rarely used because of the expense?

A. Sensitivity training
B. Cross-cultural assimilation
C. Area study
D. Field experience

ANS: D PTS: 1 DIF: Moderate REF: The training challenge

32. Which of the following is a problem that managers face when working in foreign markets?

A. The manager will always be a foreigner.

B. They must adhere to home country government patents.
C. Restrictions on trade imposed by UNESCO will thwart many of their efforts.
D. They may face retrenchment outside the home country.

ANS: A PTS: 1 DIF: Moderate REF: The training challenge

 33. According to the textbook, which of the following can be a segmentation variable if the degree of industrialisation
of the market is used as a basis?

A. The level of financial and marketing infrastructure

B. The level of material culture
C. The level of economic infrastructure
D. The level of social wealth

ANS: B PTS: 1 DIF: Difficult REF: The training challenge

34. Which of the following is a complicated and challenging element of the international marketplace?

A. Television
B. Media in general
C. Culture
D. Foreign exchange rates

ANS: C PTS: 1 DIF: Easy REF: Elements of culture

35. A key variable of cultural analysis models is:

A. propensity to change.
B. change agents.
C. undifferentiated analysis.
D. differentiated analysis.

ANS: A PTS: 1 DIF: Moderate REF: Cultural analysis

Short answer

1. Explain, using examples, the differences between high context and low context culture. Why is this relevant to a
marketer?

ANS:
Edward T Hall, who has made some of the most valuable studies on the effects of culture on business, makes a
distinction between high and low context cultures. In high context cultures, such as Japan and Saudi Arabia,
context is at least as important as what is actually said. The speaker and the listener rely on a common
understanding of the context. In low context cultures, however, most of the information is contained explicitly in
the words. Many Western cultures engage in low context communications. Unless we are aware of this basic
difference, messages and intentions can easily be misunderstood.

PTS: 1 DIF: Moderate REF: Culture defined

2. What are the six rules which serve as a summary of how culture and its appreciation may serve as a tool to ensure
marketing success?

ANS:
•  Embrace local culture – Many corporate credos include a promise to be the best possible
corporate citizen in every community in which they operate. Showing sensitivity to local customer shapes
local acceptance and builds employee morale. More importantly, it contributes to a deeper understanding
of the marketing and keeps the marketer from inadvertently doing something to alienate constituents.
 •  Build relationships – Each market has its own unique set of constituents who need to be identified
and nurtured.
•  Employ locals to gain cultural knowledge – The single best way to understand a market is to help
it grow by developing human resources and business partnerships.
•  Help employees understand you – Employing locals will give a marketer a valuable asset in
market development.
•  Adapt products and processes to local markets – Nowhere is a commitment to local marketing as
evident as in its product offering.
•  Coordinate by region – The transfer of best practice is critical, especially in areas that have
cultural similarities.

PTS: 1 DIF: Moderate REF: The training challenge

3. Elaborate on the following statement: ‘The most complicated problems in dealing with cultural environment stem
from the fact that we cannot learn culture, we have to live it.’

ANS:
Culture is inherently conservative, resisting change and fostering continuity. Every person is indoctrinated into a
particular culture, learning the ‘right way’ of doing things. Problems may arise when a person who is entrenched
in one culture has to adjust to another one. The process of acculturation – adjusting and adapting to a specific
culture other than one’s own – is one of the keys to success in international operations. In the past, marketing
managers who did not want to worry about the culture challenge could simply decide not to do so and concentrate
on domestic projects. In today’s business environment, a company has no choice but to face international
competition. To do this, a certain amount of training, understanding, indoctrination and empathy must be part of
the company culture as it adjusts to the global culture.

PTS: 1 DIF: Difficult REF: The training challenge

Chapter 6

Building the knowledge base

TRUE/FALSE

1. The single most important cause for failure in the international marketplace is not knowing the language of the
native people.

ANS: F PTS: 1 DIF: Moderate REF: Defining the issue

2. Data collected directly from the marketplace by the researcher for the first time for ‘up-to-the second’ information
about a country is known as secondary research.

ANS: F PTS: 1 DIF: Moderate REF: Defining the issue

3. The American Marketing Association (AMA) defines marketing research as ‘the function that links the consumer,
customer, and public to the marketer through information’.

ANS: T PTS: 1 DIF: Easy REF: Defining the issue

4. A major reason that firms are reluctant to engage in international marketing activities is the lack of sensitivity to
differences in consumer tastes and preferences.
 ANS: T PTS: 1 DIF: Moderate REF: International and domestic research

5. A major reason that firms are reluctant to engage in international marketing activities is the lack of sensitivity to
differences in consumer tastes and preferences.

ANS: T PTS: 1 DIF: Easy REF: Recognising the need for research

6. When a company enters several foreign markets simultaneously, the number of changing dimensions increases
arithmetically because of the coordination required between factors.

ANS: F PTS: 1 DIF: Difficult REF: International and domestic research

7. Given the cost associated with conducting international marketing research, companies must look very carefully
at its impact on resources from not only a financial viewpoint but also an environmental one.

ANS: T PTS: 1 DIF: Difficult REF: The benefits of research

8. The value of research in making a particular decision may be determined by applying the following equation:
V(dr) – V(d) > C(r)

ANS: T PTS: 1 DIF: Difficult REF: The benefits of research

9. Research objectives vary from company to company, depending on the internal state of readiness of the firm.

ANS: F PTS: 1 DIF: Difficult REF: Determining research objectives.

10. The most frequent objective of international market research is that of teaching all firm members who will be
working in the foreign country to have a working vocabulary of that country’s language.

ANS: F PTS: 1 DIF: Moderate REF: Determining research objectives.

11. Foreign-market opportunity analysis should begin with a cursory analysis of general market variables such as total
and per capita GDP, mortality rates and education level.

ANS: F PTS: 1 DIF: Moderate REF: Determining research objectives.

12. The reasons why research objectives vary include corporate mission and marketing situation.

ANS: T PTS: 1 DIF: Easy REF: Determining research objectives.

13. Foreign-market opportunity analysis is not a frequent research objective due to its high costs and lack of
objectivity.

ANS: F PTS: 1 DIF: Moderate REF: Determining research objectives.

14. The first stage of the research process is characterised by the analysis of sales potential.

ANS: F PTS: 1 DIF: Moderate REF: Determining research objectives.

15. Secondary data for international marketing research purposes are available from a limited number of sources.
 ANS: F PTS: 1 DIF: Easy REF: Determining secondary information
requirements.

16. A proxy variable is a substitute for a variable that one cannot directly measure.

ANS: T PTS: 1 DIF: Moderate REF: Determining secondary information

requirements.

17. Of all data sources, governments typically have the greatest variety of data available.

ANS: T PTS: 1 DIF: Easy REF: Determining secondary information

requirements.

18. Qualitative data is best captured using a standardised, formatted survey so that answers are consistent from
respondent to respondent.

ANS: F PTS: 1 DIF: Moderate REF: The primary research process

19. Observation techniques (in research) can be obtrusive and personal.

ANS: T PTS: 1 DIF: Difficult REF: The primary research process

 20. Scenario analysis is a research technique that looks at different configurations of key variables in the international
market.

ANS: T PTS: 1 DIF: Difficult REF: The primary research process

MULTIPLE CHOICE

1. What are the two basic forms of international research?

A. Panel and jury of peers

B. Focus groups and written surveys
C. Primary and secondary
D. Limited and scope oriented

ANS: C PTS: 1 DIF: Moderate REF: The benefits of research

2. Even though most managers recognise the need for domestic marketing research, the single most important cause
for failure in the international marketplace is insufficient ___________and _______________ .

A. research; adaptation
B. preparation; information
C. localisation; standardisation
D. competitive advantage; cultural information

ANS: B PTS: 1 DIF: Moderate REF: Building the knowledge base

3. ‘When entering international markets, companies encounter new parameters.’ What does this mean?

A. In crossing national borders, a firm encounters parameters not found in domestic marketing. Examples include
duties, foreign currencies and changes in their value, different modes of transportation, international
documentation, and port facilities.
B. By entering new markets the firm exposes itself to a much greater variety of competition than existed in the
domestic market.
C. Going international often means entering into more than one market.
D. None of the above

ANS: A PTS: 1 DIF: Difficult REF: International and domestic research

4. Which of the following best describes the reasons that justify the need for research when entering new markets?

A. To serve a market efficiently, firms must learn what customers want, why they want it and how they should go
about filling their needs.
B. Decisions concerning entry and expansion in overseas markets and the selection and appointment of
distributors are often made after a cursory subjective assessment of the situation.
C. To enter a market without conducting marketing research places firms, their assets and their entire operation at
risk.
D. All of these choices.

ANS: D PTS: 1 DIF: Moderate REF: Recognising the need for research
5. A ______________variable is a substitute for a variable that one cannot directly measure.

A. flexy
B. beta
C. alpha
D. proxy

ANS: D PTS: 1 DIF: Moderate REF: Determining secondary information

requirements.

6. Which of the following is a typical question of the stage one in sequential process of research foreign market
potentials?

A. What is the market share of my company is this market?

B. How attractive is the potential demand for company products and services?
C. What is the aggregate demand in each of the selected markets?
D. Which foreign markets warrant detailed investigation?

ANS: D PTS: 1 DIF: Difficult REF: Determining research objectives

7. Which of the following is correct about government data?

A. Governments typically have the greatest variety of data available.

B. Domestic and international chambers of commerce can provide valuable information about local markets.
C. The information provided by governments addresses either macro or micro issues or offers specific data
services.
D. Most countries have a wide array of national and international trade data available.

ANS: B PTS: 1 DIF: Moderate REF: Determining secondary information

requirements.

8. The tool and techniques in international marketing research are said by some to be ________________ as those of
domestic marketing research, and only the ________________ differs.

A. exactly the same; environment

B. very different; environment
C. somehow different; culture
D. exactly the same; culture

ANS: A PTS: 1 DIF: Difficult REF: International and domestic research

9. Which factor has most drastically changed the way marketers investigate data research?

A. Globalisation
B. Interchange of information between nations
C. The internet
D. Relaxation of privacy laws in the Western world

ANS: C PTS: 1 DIF: Moderate REF: Determining secondary information

requirements.
10. Collected data should be compared with secondary information and with analogous information from a similar
market in order to obtain a preliminary understanding of data quality. This is known as:

A. a realistic check.
B. a reality check.
C. a realism check.
D. a check.

ANS: C PTS: 1 DIF: Difficult REF: Determining secondary information

requirements.

11. Which of the following is not a service organisation that may be able to provide data on business practices,
legislative or regulatory requirements and political stability?

A. Freight forwarders and airlines

B. Banks
C. Accounting firms
D. All these choices are correct.

ANS: D PTS: 1 DIF: Difficult REF: The primary research process

12. Which of the following is not an example of a source of information that can be accessed by a marketer trying to
understand a foreign market?

A. Service organisations
B. Trade associations
C. Directories
D. Country support ‘houses’

ANS: D PTS: 1 DIF: Easy REF: Determining secondary information

requirements.

13. Electronic information services save marketers three valuable commodities. Which of the following best describes
these commodities?

A. Postal rates, mailing supplies and personnel options

B. Time, energy and money
C. Breakthrough rates, taxes and distribution costs
D. Positioning, rank and perception costs

ANS: B PTS: 1 DIF: Moderate REF: Determining secondary information

requirements.

14. Using data services for research has its drawbacks, including that:

A. only English-language publications are covered.

B. search engines cover only a portion of publications.
C. data is subjectively interpreted.
D. only English-language publications are covered and search engines cover only a portion of publications.
ANS: B PTS: 1 DIF: Easy REF: Determining secondary information
requirements.
15. Which of the following is not considered a step in evaluating data?

A. Evaluate the purpose and method of the original data collection.

B. Assess the quality of the data.
C. Consider the compatibility and comparability of the data.
D. Do a background check on the author of the data.

ANS: D PTS: 1 DIF: Moderate REF: Determining secondary information

requirements.

16. Countries worldwide are becoming increasingly concerned about ___________ as a result of the almost instant
access to information that is now available via the internet and through e-business.

A. the size of the international data market

B. pricing collusion
C. inaccurate data forecasting
D. data privacy

ANS: D PTS: 1 DIF: Easy REF: The primary research process

17. Research that is conducted to fill a specific information need is known as:

A. repatriation data research.

B. primary research.
C. post-introductory-phase research.
D. pinnacle positioning research.

ANS: B PTS: 1 DIF: Moderate REF: The primary research process

18. Which of the following does not affect the complexity of primary research?

A. Environment
B. Attitudes
C. Market conditions
D. Market industrialisation level

ANS: D PTS: 1 DIF: Moderate REF: The primary research process

19. A technique that investigates the content of communication in a society and entails literally counting the number
of times per-selected words, themes, symbols or pictures appear in a given medium is known as:

A. content compute.
B. count.
C. content count.
D. content analysis.

ANS: D PTS: 1 DIF: Difficult REF: The primary research process

20. Firms are increasingly recognising that __________________ such as lifestyles, attitudes or personality can play
a major role in identifying similar consumer groups in different countries.

A. cultural characteristics
B. segmentation variables
C. consumer group characteristics
D. proxy variables

ANS: B PTS: 1 DIF: Moderate REF: The primary research process

21. Which of the following is not a question one would ask in international market research when conducting primary
data?

A. Who is the owner of our main competition?

B. What is the market potential for our furniture in Indonesia?
C. What will happen to demand in Brazil if we raise our product price?
D. Who will buy our product?

ANS: A PTS: 1 DIF: Moderate REF: The primary research process

22. A__________ research approach uses an intermediary such as an outside research agency to bring headquarters
and country operations together.

A. centralised
B. decentralised
C. coordinated
D. collaborative

ANS: C PTS: 1 DIF: Moderate REF: The primary research process

23. Which of the following best describes the major issues in determining who will do the research?

A. Whether to use a centralised, coordinated or decentralised approach

B. Determining whether to use primary, secondary or hybrid research
C. Determining the cost of the research versus the value it will bring the company
D. Which respondents have international business and international research experience

ANS: A PTS: 1 DIF: Moderate REF: The primary research process

24. The centralised approach to marketing research gives most of the control, focus, thrust and design to:

A. the market research manager.

B. the brand.
C. corporate headquarters.
D. local country operations.

ANS: C PTS: 1 DIF: Moderate REF: The primary research process

25. Because an international marketing firm is unlikely to possess specialised expertise in international marketing
research for every single market it currently services or is planning to serve, it is best to consider:

A. using outside research services.

B. not doing any research at all.
C. restricting marketing operations to known and understood markets only, initially.
D. using the research conducted for one country and applying the results to all other countries with heterogeneous
markets.

ANS: A PTS: 1 DIF: Moderate REF: The primary research process

26. The first stage of a sequential process of researching foreign market potentials is a preliminary screening for
attractive country markets, followed by:

A. analysing and interpreting secondary data.

B. determining secondary information requirements.
C. a company sales potential analysis and an assessment of industry market potential.
D. an assessment of industry market potential and company sales potential analysis.

ANS: D PTS: 1 DIF: Easy REF: Determining research objectives

27. Specific research questions must be formulated to determine precisely the information that is sought. The
following are examples of such marketing questions, except:

A. What is the market potential for our furniture in Malaysia?

B. How much does the typical Chinese consumer spend on soft drinks?
C. What will happen to demand in Indonesia if we raise our product price along monthly inflation levels?
D. All these choices are correct.

ANS: D PTS: 1 DIF: Moderate REF: The primary research process

28. Which of the following reasons does not justify the importance of international marketing research? It will:

A. permit management to identify and develop strategies for internationalisation.

B. determine research objectives.
C. develop a marketing plan.
D. provide management with foreign market intelligence to help it anticipate events, take appropriate action and
prepare for global changes.

ANS: B PTS: 1 DIF: Moderate REF: Recognising the need for research

29. _________ research is essential for the formulation of __________ marketing plans. One particular area of
research interest is international market ____________.

A. Primary; strategic; segmentation

B. Secondary strategic; segmentation
C. Primary; operational; identification
D. Primary; strategic; identification

ANS: A PTS: 1 DIF: Moderate REF: The primary research process.

30. Unstructured or open-ended questions capture more in-depth information, but they also increase the potential for:

A. unanswered questions.
B. lawsuits.
C. interviewer bias.
D. cost.

ANS: C PTS: 1 DIF: Moderate REF: The primary research process.

31. Which of the following is not a reason why firms are reluctant to engage in international marketing activities?

A. A limited appreciation for the different marketing environment abroad

B. The lack of familiarity with national and international data sources and the inability to use them if obtained
C. That firms often build up their international marketing activities gradually; frequently on the basis of
unsolicited orders
D. Converging tastes and preference on a global basis.

ANS: D PTS: 1 DIF: Moderate REF: Recognising the need for research

32. When presenting research, the international marketer should:

A. show how research results fit with overall corporate strategy.

B. pay the respondents in local currency to fulfil accuracy requirements.
C. indicate insufficiently substantiated data through use of a resource bin.
D. only portray positive results.

ANS: A PTS: 1 DIF: Moderate REF: The primary research process.

33. ________________ is the most frequent objective of international market research.

A. Exporting
B. Foreign-market opportunity analysis
C. Importing
D. Market similarities

ANS: B PTS: 1 DIF: Moderate REF: Determining secondary information

requirements.

34. Which of the following is not an important attribute of an international information system?

A. The information must be relevant.

B. The information must be timely.
C. The information must be standardised.
D. The information must be accurate.

ANS: C PTS: 1 DIF: Moderate REF: The international information system

 35. Which of the following is incorrect?

A. Marketers will connect with consumers in ways almost unimaginable several years ago.
C. Another advancement that bodes well for the future of marketing research is video eye-tracking technology.
B. Eye tracking is precisely what the name implies – the technology tracks the eye’s movement as it views images
on a screen.
D. None of the above.

ANS: D PTS: 1 DIF: Moderate REF: Future insights

SHORT ANSWER

1. What are the three major constraints placed upon international marketing firms, and how do they make decisions
in light of these constraints?

ANS:
Constraints of time, resources and expertise are the major inhibitors of international marketing research.
Nevertheless, firms need to carry out planned and organised research in order to explore global market
alternatives successfully. Such research needs to be closely linked to the decision-making process.

PTS: 1 DIF: Moderate REF: Recognising the need for research

2. Explain the differences between international market research and domestic market research.

ANS:
International market research differs from domestic research in that the environment, which determines how well
tools, techniques and concepts apply, is different abroad. In addition, the manager needs to deal with new
parameters (such as duties, exchange rates and international documentation), a greater number of interacting
factors and a much broader definition of the concept of competition.

PTS: 1 DIF: Moderate REF: International and domestic research

3. Why is it important to protect the analysis and presentation phases of research gathering?

ANS:
Once the data have been collected, care must be taken with analysis and with the use of the appropriate analytical
tools (relative to the quality of the data collected) so that management is not misled about the results or the
sophistication of the research. The research results must be presented in a concise and useful form so that
management can benefit from it in its decision making.

PTS: 1 DIF: Moderate REF: The primary research process.

Chapter 7

Foreign market entry

TRUE/FALSE

1. Exporting is the third less risky foreign market entry method.

ANS: F PTS: 1 DIF: Easy REF: Motivation to internationalise

 2. In most cases today, a firm can enter the international market easily, and the process takes less time than
participating in the domestic market.

ANS: F PTS: 1 DIF: Easy REF: Motivation to internationalise

3. Proactive firms go international because they want to do so. Reactive motivations influence firms that are
responsive to environmental changes and who adjust to them by changing their activities over time.

ANS: T PTS: 1 DIF: Moderate REF: Motivation to internationalise

4. Agents have less freedom of movement than distributors.

ANS: T PTS: 1 DIF: Moderate REF: Change agents

5. Export activities are so important to revenue that all countries offer tax concessions to their firms.

ANS: F PTS: 1 DIF: Moderate REF: Motivation to internationalise

6. International marketing activities can often provide a good reason for international travel.

ANS: T PTS: 1 DIF: Moderate REF: Motivation to internationalise

7. Frequently, international market expansion motivated by overproduction did not represent full commitment by
management, but rather safety valve activity designed for short-term activities only.

ANS: T PTS: 1 DIF: Moderate REF: Motivation to internationalise

8. A motivator for a company to begin international marketing of products is stable domestic sales.

ANS: T PTS: 1 DIF: Moderate REF: Motivation to internationalise

9. Assuming product success in the home market, a company can penetrate an international market with a pricing
scheme focused on variable costs alone, but this strategy is only feasible with a long-term commitment.

ANS: F PTS: 1 DIF: Difficult REF: Motivation to internationalise

10. Firms that are only psychologically distant from customers and ports tend to be more active in exporting.

ANS: F PTS: 1 DIF: Moderate REF: Motivation to internationalise

11. Sometimes cultural variables, legal factors and other societal norms make a foreign market that is geographically
close seem psychologically distant.

ANS: T PTS: 1 DIF: Moderate REF: Motivation to internationalise

12. In order for change to take place within an organisation, someone or something within the company must initiate
it and shepherd it through to implementation. This person (or this internal condition) is referred to as an
expansionist.

ANS: F PTS: 1 DIF: Difficult REF: Change agents

13. The issue of profit repatriation and accumulation may cause discontent.

ANS: F PTS: 1 DIF: Moderate REF: A perspective on foreign direct

investors

14. Declining domestic sales volume (or market share) is only a motivator to enter international marketing if
significant lead time exists in the foreign market.

ANS: F PTS: 1 DIF: Moderate REF: Motivation to internationalise

15. New management is the primary external change agent in the internationalisation process.

ANS: F PTS: 1 DIF: Moderate REF: Change agents

16. Integrated distribution requires dealing with another domestic firm that acts as a sales intermediary for the
marketer, often taking over the international side of the marketer’s operations.

ANS: F PTS: 1 DIF: Moderate REF: Change agents

17. The growing global protection of intellectual property rights is one of the reasons why licensing is becoming an
increasingly popular.

ANS: T PTS: 1 DIF: Moderate REF: Licensing and franchising

18. Many of the problems encountered by joint ventures stem from a lack of careful, advance consideration of how to
manage the new endeavour.

ANS: T PTS: 1 DIF: Moderate REF: A perspective on foreign direct

investors

19. Franchising is attractive to the governments of recipient countries because the outflow of foreign exchange is low.

ANS: T PTS: 1 DIF: Difficult REF: Licensing and franchising

20. Joint venture legislation and the ensuing regulations are often subject to substantial interpretation and
arbitrariness.

ANS: T PTS: 1 DIF: Moderate REF: A perspective on foreign direct

investors
MULTIPLE CHOICE

1. Which of the following is not a reactive reason why firms go international?

A. Managerial urge
B. Overproduction
C. Excess capacity
D. Proximity to customers and ports

ANS: A PTS: 1 DIF: Difficult REF: Motivation to internationalise

2. ____________, ___________, __________ and investment climate are the main causes of FDI.

A. Market factors; barriers of trade; cost factors

B. Government resources; economies of scale; risk management
C. Market factors; government resources; cost factors
D. Reactive factors; proactive factors; risk management.

ANS: A PTS: 1 DIF: Difficult REF: Foreign direct investment

3. Which of the following is not a proactive reason why firms go international?

A. A firm may produce goods or services that are not widely available from international competitors or may have
made technological advances in a specialised field.
B. They have exclusive market information, such as knowledge about customers and marketplaces.
C. The size of the international market may enable the firm to increase output and slide more rapidly on the
learning curve.
D. During downturns in the domestic business cycle, markets abroad provided an ideal outlet for high inventories.

ANS: D PTS: 1 DIF: Difficult REF: Motivation to internationalise

4. Which of the following is not an external change agent in the internationalisation process?

A. Demand
B. Domestic distributors
C. Export management companies
D. New management

ANS: D PTS: 1 DIF: Easy REF: Change agents

5. Which of the following is considered a proactive motivation to go international?

A. Competitive pressures
B. Unique products
C. Over-production
D. Excess capacity

ANS: B PTS: 1 DIF: Moderate REF: Motivations to internationalise

 6. Which of the following is considered a reactive motivation to go international?

A. Profit advantage
B. Saturated domestic markets
C. Managerial urge
D. Technological advantage

ANS: B PTS: 1 DIF: Moderate REF: Motivations to internationalise

7. Historically, during downturns in the domestic business cycle, markets abroad provided an ideal outlet for high
inventories. Such international market expansion does not represent full commitment by management, but rather a
temporary _______________ designed for short-term activities

A. investment
B. psychic distance
C. safety valve activity
D. production

ANS: C PTS: 1 DIF: Moderate REF: Motivations to internationalise

8. Which of the following is not a specialisation market intermediaries bring?

A. External cultural understanding

B. Detailed information about the competitive conditions in certain markets
C. Evaluation of credit risk
D. Personal contacts with potential buyers abroad

ANS: A PTS: 1 DIF: Moderate REF: Change agents

9. Conditions used to be such that the first entrant into a foreign market could count on being the leader for years,
but in today’s marketplace, the competitive edge is not as great because:

A. of competing technology and frequent lack of intellectual property rights protection.

B. competing domestic firms were there first.
C. globalisation and the internet do not allow there to be a ‘first firm’.
D. most countries do not allow the first entrant to be a foreign firm.

ANS: A PTS: 1 DIF: Moderate REF: Change agents

10. Which of the following is the primary outside influence on a firm’s decision to become international?

A. In more than half of all cases, unsolicited orders

B. To take advantage of holiday destinations in colder months
C. Foreign demand
D. To satisfy a desire for continuous growth and market expansion

ANS: C PTS: 1 DIF: Moderate REF: Change agents

11. Why has taxation, although historically a good incentive for exporting, become less of an incentive for companies
to go international?

A. Companies do not pay taxes on exports any more.

B. Exports are subject only to taxation when consumed.
C. Because of WTO regulations.
D. Published lists indicate export quota taxation guidelines.

ANS: C PTS: 1 DIF: Difficult REF: Change agents

12. Which of the following requires the marketer to make an investment into the foreign market for the purpose of
selling its products in that market or more broadly in the region?

A. Agents
B. Indirect exporting
C. Direct exporting
D. Integrated distribution

ANS: D PTS: 1 DIF: Difficult REF: Change agents

13. As a result of overproduction, companies historically would move inventories to foreign markets during periods
of domestic downturn. What was this practice called?

A. Sky rocketing
B. Pitching, assuming lag time was present
C. Dumping, assuming lead time was available
D. Safety-valve activity

ANS: D PTS: 1 DIF: Difficult REF: Change agents

14. Which type of intermediaries are typically organised along product lines and provide the international marketer
with complete marketing services?

A. Agents
B. Direct exporters
C. Distributors
D. Indirect distributors

ANS: C PTS: 1 DIF: Moderate REF: Change agents

15. Which of the following is not a key issue in negotiating licensing agreements?

A. Remuneration
B. Compensation
C. Licensee compliance
D. Dispute resolution

ANS: A PTS: 1 DIF: Moderate REF: Licensing and franchising

16. Which of the following is not a disadvantage of licensing?

A. It may leave the international marketing functions to the licensee.

B. Transfer costs.
C. The initial toehold in the foreign market may not be a foot in the door.
D. The licensor may create its own competitors.

ANS: B PTS: 1 DIF: Moderate REF: Licensing and franchising

17. _____________ allows companies to improve their sustainability and be seen by consumers and stakeholders as
more environmentally friendly.

A. Foreign direct investment

B. Exporting
C. Franchising
D. Licensing

ANS: D PTS: 1 DIF: Difficult REF: Licensing and franchising

18. Which of the following is not a cost the licensor wants to cover?

A. Transfer costs
B. R&D costs
C. Opportunity costs
D. Remuneration

ANS: D PTS: 1 DIF: Moderate REF: Licensing and franchising

19. The internationalisation process can be driven by external forces such as:

A. enlightened management, domestic distributors and export intermediaries.

B. the researchers and product developers.
C. demand, other firms and banks.
D. the marketing department.

ANS: C PTS: 1 DIF: Moderate REF: Change agents

20. Firms can become unplanned participants in the international market because of:

A. a salesperson’s decision.
B. management’s gamble on a new market segment.
C. government mandate.
D. growth of corporate websites.

ANS: D PTS: 1 DIF: Moderate REF: Change agents

21. A firm that finds itself unexpectedly exporting its products without much planning is:

A. lucky.
B. an accidental exporter.
 C. subject to heavy competitive scrutiny in the long term.
D. unlikely to succeed in the long term.

ANS: B PTS: 1 DIF: Easy REF: Change agents

22. Which of the following is not required to be stipulated in the licensing agreement?

A. Licensee’s marketing strategies

B. Export control regulations
C. Confidentiality of the intellectual property and technology provided
D. Record keeping and provisions for licensor audits

ANS: A PTS: 1 DIF: Moderate REF: Licensing and franchising

23. Which of the following is not a reason for foreign domestic investment?

A. Marketing factors
B. Trade restrictions
C. IPRS concerns
D. Cost factors

ANS: C PTS: 1 DIF: Moderate REF: Foreign direct investment

24. Which of the following is not a key impediment to international franchising?

A. Meeting and training qualities and reliable franchisees overseas

B. Collection and transfer of franchise fee
C. Storage of raw materials, equipment and other products
D. Shipping and handling of equipment needed to operate a foreign franchise

ANS: C PTS: 1 DIF: Difficult REF: Licensing and franchising

25. Export management companies and trading companies are firms that assist other firms in marketing products
abroad. What are these international broker-like companies called?

A. Export intermediaries
B. Export agents
C. Trading agents and distributors
D. Product representatives

ANS: A PTS: 1 DIF: Moderate REF: Change agents

26. _____________incentives are specific tax measures designed to serve as an attraction to the foreign investor.
_______ incentives offer special funding for the investor by providing land or buildings, loans. loan guarantees or
wage subsidies. _________ incentives can consist of guaranteed government purchases; special protection from
competition through tariffs, import quotas and local content requirements; and investments in infrastructure
facilities.

A. Financial; Fiscal; Non-fiscal

B. Fiscal; Financial; Non-fiscal
C. Fiscal; Financial; Non-financial
D. Semi-financial; Financial; Non-financial

ANS: C PTS: 1 DIF: Moderate REF: Foreign direct investment

27. Agents have less freedom than distributors because:

A. they operate on a commission basis.

B. they do not usually physically handle the goods.
C. the marketer can ensure the customer gets the most appropriate product version.
D. All of these choices

ANS: D PTS: 1 DIF: Moderate REF: Change agents

28. An international distributor:

A. does not purchase the products.

B. is organised along product lines.
C. operates exclusively for one international marketer.
D. None of the above

ANS: B PTS: 1 DIF: Easy REF: Change agents

29. Under a licensing agreement:

A. the licensor permits another to use its intellectual property.

B. the licensee is paid on a royalty basis.
C. there are no intangibles.
D. control is shifted from the original centre of gravity on the vertical supply chain.

ANS: A PTS: 1 DIF: Moderate REF: Franchising and licensing

30. Merchandising licensing agreements:

A. can have fees ranging from 7–12 per cent of net sales.
B. only apply to trademarks.
C. need considerable effort on the part of licensors.
D. can have fees ranging from 7–12 per cent of net sales and only apply to trademarks.

ANS: D PTS: 1 DIF: Moderate REF: Franchising and licensing

31. Which of the following is a form of franchising?

A. Manufacturer–retailer systems
B. Manufacturer–wholesaler systems
C. Service firm–retailer systems
D. All of these choices

ANS: D PTS: 1 DIF: Moderate REF: Franchising and licensing

32. Which of the following statements is correct?

A. There is a love–hate relationship between governments and foreign direct investors.

B. Particularly in developed countries, the knowledge advantage of foreign investors may offer opportunities for
exploitation.
C. Governments criticise foreign direct investors for bringing capital and employment.
 D. None of the above

ANS: A PTS: 1 DIF: Moderate REF: A perspective on foreign direct

investors

33. All of the following options are disadvantages of joint ventures, except:

A. Relationships are hard to maintain in partnerships.

B. In some cases, managers are interested in launching the venture but have little concern with actually running
the enterprise.
C. Joint ventures permit better relationships with local organisations – government, local authorities or labour
unions.
D. Reconciling conflicts of loyalty is one of the greatest human resource challenges for joint ventures.

ANS: C PTS: 1 DIF: Difficult REF: A perspective on foreign direct

investors

34. One special form of joint venture is the ____________, or partnership. These _______________ arrangements
between two or more companies with a common business objective result from growing global competition, rapid
increases in the investment required for technological progress and growing risk of failure.

A. joint ventures; unusual

B. joint ventures; informal
C. strategic alliance; formal
D. strategic alliance; formal or informal

ANS: D PTS: 1 DIF: Moderate REF: A perspective on foreign direct

investors

35. Which of the following statements is incorrect?

A. Exporting permits a broader and quicker coverage of world markets with the ability to respond to changes.
Risks are lower, but costs tend to be higher because of transhipment and transaction expenses.
B. An increase will occur in the trend towards strategic alliances, or partnering, permitting the formation of
collaborative arrangements between firms.
C. FDI reflects the long-term nature of a firm’s objectives and makes use of local advantages.
D. The least visible and powerful players in the FDI field are larger-sized firms and multinational corporations.

ANS: D PTS: 1 DIF: Difficult REF: Future insights

SHORT ANSWER

1. Why is licensing so popular with many potential international marketers?

ANS:
As an entry strategy, licensing may require neither capital investment nor knowledge and marketing strength in
foreign markets. By earning royalty income, it provides an opportunity to obtain an additional return on research
and development investments already incurred. After initial costs, the licensor can reap benefits until the end of
the contract period. Licensing reduces risk of exposure to government intervention. Licensing helps to avoid host
country regulations that are focused on equity ventures. Licensing serves as a stage in the internationalisation of
 the firm by providing a means by which foreign markets can be tested without major involvement of capital or
management time. Licensing can pre-empt a market before the entry of competition.

PTS: 1 DIF: Moderate REF: Licensing and franchising

2. What is the difference between proactive and reactive motivators that spur a company to go international?

ANS:
Proactive motivations are initiated by the firm’s management and consist of perceived profit advantage,
technological advantage, product advantage, exclusive market information or managerial urge. Reactive
motivations are the responses of management to environmental change and pressures. Typical reactive
motivations include competitive pressures, overproduction, declining domestic sales and excess capacity. Firms
that are primarily stimulated by proactive motivations are more likely to enter international markets aggressively
and successfully.

PTS: 1 DIF: Difficult REF: Motivations to internationalise

3. Explain the three major types of foreign investment that governments offer to FDI.

ANS:
Fiscal incentives are specific tax measures designed to serve as an attraction to the foreign investor. They typically
consist of special depreciation allowances, tax credits or rebates, special deductions for capital expenditures, tax
holidays and other reductions of the tax burden on the investor. Financial incentives offer special funding for the
investor by providing land, buildings or loans.

PTS: 1 DIF: Difficult REF: Foreign direct investment

Chapter 8

Channels of distribution and logistics

TRUE/FALSE

1. The importance of structuring channel relationship is further compounded by the fact that the channel decision is
the most long-term of the marketing mix decisions in that, once changed, it cannot easily be dissolved.

ANS: F PTS: 1 DIF: Difficult REF: Channel structure

2. Channel configuration of services and consumers goods is practically the same.

ANS: F PTS: 1 DIF: Easy REF: Channel structure

3. Neglect of logistics issues brings only higher costs but not the risk of eventual non-competitiveness due to
diminished market share, more expensive supplies or lower profits.

ANS: F PTS: 1 DIF: Moderate REF: Channel structure

4. If a business depends on an outside distribution system (that may have regional or global coverage), it is
considered to have intra-company links.
 ANS: F PTS: 1 DIF: Easy REF: Channel structure

5. Because most marketers have a vested interest in the distribution of their products, they structure the channel
relationships so that they control the distribution systems from manufacturer to customer.

ANS: F PTS: 1 DIF: Difficult REF: Channel design

6. The connections made by marketing institutions are not solely for the physical movement of goods. They also
serve as transactional title flows and informational communications flows.

ANS: T PTS: 1 DIF: Easy REF: Channel design

7. There are four forms of ‘flow’ in the channel, and they include physical, transactional, routine and information.

ANS: F PTS: 1 DIF: Difficult REF: Channel design

8. Because only a few products are sold directly to ultimate users, an international marketer has to decide on
alternative ways to move products to chosen markets.

ANS: T PTS: 1 DIF: Moderate REF: Channel design

9. The demographic and psychographic characteristics of targeted customers will form the basis for channel design
decisions and, in any case, channel design refers to the length and width of the channel employed.

ANS: T PTS: 1 DIF: Difficult REF: Channel design

10. The 11 ‘C’s checklist is used to determine channel structure and relationships. Three of the factors are not
controllable because the firm must adjust to existing structures. These factors are culture, competition and
coverage.

ANS: F PTS: 1 DIF: Moderate REF: Channel design

11. Foreign legislation affecting distribution and agents is part of what is termed ‘distribution culture’.

ANS: T PTS: 1 DIF: Easy REF: Selection of intermediaries

12. The easiest approach for the firm seeking intermediaries is to consult trade directories.

ANS: F PTS: 1 DIF: Moderate REF: Selection of intermediaries

13. Red markets refer to authentic and legitimately manufactured trademark items that are produced and purchased
abroad but imported or diverted to the country by bypassing designated channels.

ANS: F PTS: 1 DIF: Difficult REF: Selection of intermediaries

14. The term ‘coverage’ includes the quality of the representations of a company’s products.

ANS: T PTS: 1 DIF: Difficult REF: Channel design

15. Selective coverage entails having a number of intermediaries for each area to be penetrated.

ANS: T PTS: 1 DIF: Moderate REF: Selection of intermediaries

16. Pirates no longer exist.

ANS: F PTS: 1 DIF: Easy REF: The international marketplace

17. Global internet penetration grew at a rate of approximately 550 per cent from 2000 to 2012.

ANS: T PTS: 1 DIF: Moderate REF: E-commerce

18. Carbon footprint is not as relevant as it was it the past due to more efficient international logistics.

ANS: F PTS: 1 DIF: Moderate REF: International logistics

19. JIT systems are not popular in international distribution due to lower inventory costs.

ANS: F PTS: 1 DIF: Moderate REF: International logistics

20. The ‘trade-off’ concept in international logistics is based on the notion that material flow activities can be
considered only in the context of their interaction.

ANS: F PTS: 1 DIF: Difficult REF: International logistics

MULTIPLE CHOICE

1. Which of the following is not an internal determinant of channel structure and relationships?

A. Company objectives
B. Competition
C. Coverage
D. Communication

ANS: B PTS: 1 DIF: Moderate REF: Channel design

2. Which of the following is not considered a channel?

A. Direct from producer to consumer

B. Multi-level
C. Business-to-business.
D. Trade-off

ANS: D PTS: 1 DIF: Moderate REF: Channel design

3. Which of the following is incorrect?

A. Sometimes, management goals may conflict with the best possible channel design.
B. Starbucks invests very little capital in international expansion (less than 5 per cent of revenue), and local
partners bear all business risk.
C. Coca-Cola wins increased sales at the expense of displaced competition and a much lower cost-to-serve.
D. The term ‘continuity’ is used to describe both the number of areas in which the marketer’s products are
represented and the quality of that representation.

ANS: D PTS: 1 DIF: Difficult REF: Channel design

4. According to the textbook, six sectors are forecast to lead the way in business-to-business online transactions.
Which of the following is not in the six sectors?

A. Retail
B. Shipping
C. Technological products
D. Online marketing

ANS: D PTS: 1 DIF: Difficult REF: Channel design

5. Which of the following is incorrect? Retailers in Japan:

A. demand more from manufacturers and wholesalers than do other retailers.

B. expect wholesalers to build close relationships with their consumers.
C. expect returns of merchandise to be fully accepted even if there is no reason other than lack of sales.
D. expect significant amounts of financing and frequent delivery of products.

ANS: B PTS: 1 DIF: Difficult REF: Channel design

 6. What is the main reason to use an intermediary when introducing an internationally marketed product into a new
foreign market?

A. Space reduction
B. Flighting of possible retailing expenditures
C. Relatively low-cost entry
D. Sensationalising the instalment precedent

ANS: C PTS: 1 DIF: Difficult REF: Channel design

7. What does the term ‘channel design’ mean?

A. The use of common product packaging within product families in a channel

B. The use of common texture within product families in a channel
C. The length and width of the channel employed
D. Development of the channel of communication to stockholders, particularly presentations and printed
brochures

ANS: C PTS: 1 DIF: Moderate REF: Channel design

8. Which of the following is not on the ‘11 Cs’ checklist?

A. Country
B. Company objectives
C. Character
D. Capital

ANS: A PTS: 1 DIF: Difficult REF: Channel design

9. Which consumer characteristics of the targeted customers will form the basis for the channel design decisions?

A. Station approach and income level

B. Transactional analysis and future (predictable) categories of contingency
C. Lifetime value
D. Demographics and psychographics

ANS: D PTS: 1 DIF: Moderate REF: Channel design

10. What is the most important document to the shipper, carrier and buyer?

A. Shipper export declaration

B. Bill of landing
C. Shipper agreement contract
D. Packing list

ANS: B PTS: 1 DIF: Difficult REF: The international shipment

11. The term ‘distribution culture’ means:

A. the language and business methods used in the supply channel.

B. the language, use of symbols and acceptable behaviour of channel members.
C. that industries tend to cluster geographically.
D. existing channel structures.

ANS: D PTS: 1 DIF: Difficult REF: Channel design

12. Channels used by competitors may be the only product distribution system that is accepted by the trade and
consumers. In this case:

A. the international marketer may not be able to manipulate the distribution variable.
B. the international marketer may need to choose a partner capable of developing markets rather than one who has
existing contracts.
C. developing a new distribution system is known as the ‘green fields’ scenario.
D. the international marketer may not be able to manipulate the distribution variable and the international
marketer may need to choose a partner capable of developing markets rather than one who has existing
contracts.

ANS: D PTS: 1 DIF: Difficult REF: Channel design

13. The more specialised, expensive, bulky or perishable is the product, and the more after-sales service it may
require, the more likely:

A. the channel is relatively short.

B. the channel is relatively long.
C. multiple channels are used.
D. the channel is relatively wide.

ANS: A PTS: 1 DIF: Difficult REF: Channel design

14. According to the textbook, globalisation in the distribution function is taking place in two significant ways.
Distribution formats are crossing borders, especially to newly emerging markets. The second trend is:

A. that intensive and selective coverage both call for longer channels using different types of intermediaries.
B. the globalisation of consumers themselves, either independently or through strategic alliances.
C. the globalisation of retailers themselves, either independently or through strategic alliances.
D. the globalisation of intermediaries themselves, either independently or through strategic alliances.

ANS: D PTS: 1 DIF: Difficult REF: Channel design

15. Some loss of control over the marketing of the firm’s products comes from:

A. the use of intermediaries.

B. a short channel.
C. an over-taut relationship between marketer and intermediaries.
D. an intermediate channel.
 ANS: A PTS: 1 DIF: Moderate REF: Channel design

16. Which of the following is not an advantage of a single distributor?

A. Promotional activities
B. Less noise in communication channel
C. More economical logistics flows
D. Elimination of intra-brand competition

ANS: A PTS: 1 DIF: Moderate REF: Channel design

17. Which of the following is correct about sources of finding intermediaries?

A. The hardest approach for the firm seeking intermediaries is to consult trade directories.
B. Austrade provides tailor-made services that assist firms in identifying suitable representatives abroad.
C. Marketers should not use their websites to attract international distributors and agents as ideally they should be
more proactive.
D. None of the above

ANS: B PTS: 1 DIF: Difficult REF: Selection of intermediaries

18. The type of channel chosen:

A. is an administrative decision based on costing rather than profit projections.

B. directly affects the distribution culture.
C. must match the overall positioning of the product in the market.
D. None of the above

ANS: C PTS: 1 DIF: Moderate REF: Channel design

19. ___________ will purchase the product and will therefore exercise more ____________ than ________.

A. Distributors; independence; agents

B. Distributors; dependence; agents
C Agents; dependence; distributors
D. Agents; independence; distributors

ANS: A PTS: 1 DIF: Moderate REF: Selection of intermediaries

20. Which of the following statements about the termination of channel relationships is incorrect?

A. The most typical reason for termination is changes in the international marketer’s distribution approach or a
(perceived) lack of performance by the intermediary.
B. Channel relationships go through a life cycle.
C. Over time, the manufacturer’s marketing capabilities increase while a distributor’s ability and willingness to
grow the manufacturer’s business in that market decreases.
D. All the alternatives are correct.
ANS: D PTS: 1 DIF: Moderate REF: Selection of intermediaries
21. The expenditure incurred in maintaining a channel once it is established is referred to as:

A. continuity.
B. cost.
C. cash flow.
D. net present pricing.

ANS: B PTS: 1 DIF: Easy REF: Selection of intermediaries

22. Three types of vessels operating in ocean shipping can be distinguished by their service. __________ offers
regularly scheduled passage on established routes. _________ mainly provides contractual services for individual
voyages or prolonged periods of time. __________ is available for irregular routes and is scheduled only on
demand.

A. Tramp service; Liner service; Bulk service

B. Bulk service; Tramp service; Liner service
C. Liner service; Bulk service; Tramp service
D. Thin service; Bulk service; Tramp service

ANS: C PTS: 1 DIF: Difficult REF: International transportation issues

23. Which of the following statements about pirates is correct?

A. Pirates are no longer relevant due to ships with a more advanced security systems.
B. Tracking down pirates is relatively cheap.
C. In spite of large corporate investments to build security, new attacks happen daily.
D. South American shores represent the greatest danger to shipping companies.

ANS: C PTS: 1 DIF: Moderate REF: The international marketplace 8.1

24. Which of the following statements about transportation modes is correct?

A. Merchandise shipped via air is likely to suffer less loss and damage from exposure of the cargo to movement.
B. High-value items are more likely to be shipped by air, particularly if they have a high density.
C. Water transportation is a key mode for international freight movements.
D. All of these choices

ANS: D PTS: 1 DIF: Moderate REF: International transportation issues.

25. According to the textbook, which of the following is conducive to more direct sales?

A. Intensive coverage
B. Selective coverage
C. Exclusive coverage
D. Inclusive coverage

ANS: C PTS: 1 DIF: Easy REF: Channel design

26. Which of the following is a criterion for selecting intermediaries?

A. Reputation
B. Profitability
C. Organisation type
D. Profitability and organisation type

ANS: A PTS: 1 DIF: Difficult REF: Selection of intermediaries

27. The ________________minimises the firm’s overall logistics cost within the entire system. Its implementation
requires that the members of the system understand the sources of costs.

A. total cost concept

B. profit maximisation concept
C. cost-based concept
D. trade-off concept

ANS: A PTS: 1 DIF: Easy REF: International logistics

28. Which category of export marketing strategy requires the marketer to make an investment into the foreign market
for the purpose of selling its products in that market or more broadly?

A. Indirect exporter
B. Direct exporter
C. Integrated distribution
D. Agents

ANS: C PTS: 1 DIF: Moderate REF: Channel design

29. Which of the following is not an advantage of a single distributor?

A. One corporate presence eliminates confusion among buyers and local officials.
B. Communication is less plagued by noise.
C. Logistics flows are more economical.
D. Marketing programs are cheaper.

ANS: D PTS: 1 DIF: Easy REF: Channel design

30. Locating a warehouse near the customer may reduce the cost of transportation. This is an example of what type of
concept?

A. Total cost concept

B. Profit maximisation concept
C. Cost-based concept
D. Trade-off concept

ANS: D PTS: 1 DIF: Moderate REF: International logistics

 31. Parallel importation refers to authentic and legitimately manufactured trademark items that are produced and
purchased abroad but imported or diverted into a country by bypassing designated channels. What type of market
is this?

A. Subversive
B. Sub-governmental
C. Grey.
D. Black

ANS: C PTS: 1 DIF: Easy REF: Selection of intermediaries

32. Two dimensions are of major importance to inventory management. They are:

A. the length of the total order cycle and its consistency.

B. the throughput volume and inventory management cost.
C. the economies of scale and economies of scope.
D. the cost and storage time.

ANS: A PTS: 1 DIF: Easy REF: International inventory issues

33. _____________ is instrumental in getting the merchandise to the ultimate destination in a safe, maintainable and
presentable condition.

A. Insurance
B. Shipping documents
C. Packaging
D. Bill of packaging

ANS: C PTS: 1 DIF: Moderate REF: International packaging issues

34. The distributor’s existing product lines should be analysed along four dimensions. Which of the following is not
one of the four dimensions?

A. Competitiveness
B. Compatibility
C. Complementary nature
D. Brand assets.

ANS: D PTS: 1 DIF: Moderate REF: Channel design

SHORT ANSWER

1. What is your opinion about future innovative approaches to international distribution?

ANS:
It is important for students to show some critical thinking when answering this question. Innovative distribution
approaches will determine new ways of serving markets. Over time, self-sustaining consumer–distributor
relationships will emerge. For example, refrigerators will report directly to grocery store computers that they are
running low on supplies and require a home delivery billed to the customer’s account.

PTS: 1 DIF: Moderate REF: Future insights

 2. Elaborate on the recommended logistic optimisation method.

ANS:
To optimise the logistics system, the marketer should analyse international product sales and then rank products
according to warehousing needs. Products that are most sensitive to delivery time may be classified as ‘A’
products. ‘A’ products would be stocked in all distribution centres, and safety stock levels would be kept high.
Products for which immediate delivery is not urgent may be classified as ‘B’ products. They would be stored only
at selected distribution centres around the world. Finally, ‘C’ products for which short delivery time is not
important, or for which there is little demand, would be stocked only at headquarters. Should an urgent need for
delivery arise, airfreight could be considered for rapid shipment. Classifying products through such an ABC
analysis enables the international marketer to substantially reduce total international warehousing requirements
and still maintain acceptable service levels.

PTS: 1 DIF: Difficult REF: International logistics

3. What are the three different approaches for coverage that are available to the international marketer?

ANS:
Intensive coverage calls for distributing the product through the largest number of different types of
intermediaries and the largest number of individual intermediaries of each type. Selective coverage entails
choosing a number of intermediaries for each market. Exclusive coverage involves only one entity in a market.
Generally, intensive and selective coverage calls for longer channels using different types of intermediaries,
usually wholesalers and agents. Exclusive distribution is conducive to more direct sales.

PTS: 1 DIF: Difficult REF: Channel design

Chapter 9

Product policy and adaptation in international markets

TRUE/FALSE

1. A customer attaches value to a product in proportion to its perceived ability to help solve problems or meet needs.

ANS: T PTS: 1 DIF: Moderate REF: Product variables

2. Products can be differentiated by their composition, by their country of origin, by their tangible features such as
packaging or quality, or by their core features such as warranty.

ANS: F PTS: 1 DIF: Moderate REF: Product variables

3. While Chinese customers may view Japanese products quite positively regarding their quality, historical
animosity towards Japan may prevent them from buying Japanese goods or cause them to prefer goods from other
sources.

ANS: T PTS: 1 DIF: Moderate REF: Product variables

4. The core product may be highly similar to those of its competitors, meaning the marketer must use augmented
features of the product in order to achieve differentiation.

ANS: T PTS: 1 DIF: Easy REF: Product variables

5. Studies on product adaptation show that a minority of products have to be modified for the international
marketplace in one way or another.

ANS: F PTS: 1 DIF: Moderate REF: Product variables

6. Google was forced by the Chinese government to establish a new site, Google.cn.

ANS: T PTS: 1 DIF: Easy REF: The market environment

7. The ISO 9000 and 14000 international standards have not been widely accepted by many organisations across all
industrial sectors in China.

ANS: F PTS: 1 DIF: Easy REF: The market environment

8. The more exporters learn about local market characteristics in individual markets, the more they are able to
establish similarities and, as a result, customise their marketing approach.

ANS: F PTS: 1 DIF: Moderate REF: The market environment

9. In some cases, the situation in a developing market may require backward innovation; that is, the market may
require a drastically simplified version of the firm’s product due to lack of purchasing power or usage conditions.

ANS: T PTS: 1 DIF: Moderate REF: The market environment

10. Economic integration is a driving force in making markets more unified and therefore making product
standardisation more likely.

ANS: T PTS: 1 DIF: Difficult REF: The market environment

11. Government regulations are probably the single most important factor contributing to product adaptation and,
because of bureaucratic red tape, often the most cumbersome and frustrating factor to deal with.

ANS: T PTS: 1 DIF: Moderate REF: The market environment

12. Government regulations often present the most stringent requirements.

ANS: T PTS: 1 DIF: Easy REF: The market environment

13. Often, no concrete product changes are needed, only a change in the product’s positioning.

ANS: T PTS: 1 DIF: Moderate REF: Product characteristics

14. Economic integration usually reduces discriminatory governmental regulation.

ANS: T PTS: 1 DIF: Moderate REF: The market environment

15. Non-tariff barriers include testing or approval procedures.

ANS: T PTS: 1 DIF: Moderate REF: The market environment

16. The characteristics and behaviour of intended customer groups are as important as governmental influences on the
product adaptation decision.

ANS: T PTS: 1 DIF: Moderate REF: The market environment

17. For the Australian market, video poker screens are built to take a beating because Australian gamblers take losing
more personally than anywhere else.

ANS: T PTS: 1 DIF: Moderate REF: The market environment

18. Backward innovation is when a company produces a drastically simplified version of a product due to lack of
purchasing power or usage conditions.

ANS: T PTS: 1 DIF: Easy REF: Product characteristics

19. The colour white is gaining popularity in industrialised countries because name brands want to be confused with
generic products.

ANS: F PTS: 1 DIF: Difficult REF: Product characteristics

20. An unauthorised representation of a copyrighted work, a patented invention or a trademark is called an imitated
good.

ANS: F PTS: 1 DIF: Easy REF: Product counterfeiting

MULTIPLE CHOICE

1. Customers are no longer satisfied with simply having a product: they want it to precisely meet their needs and
preferences. ____________ requires working with existing product technology, often in modular form, to create
specific product bundles for a particular customer.

A. Mass customisation
B. Economies of scale
C. Mass standardisation
D. Mass variations

ANS: A PTS: 1 DIF: Moderate REF: Future insights

2. Which of the following statements is incorrect?

A. Worldwide, more than 40 per cent of all software is illegally copied.

B. Some companies, such as Disney, have tried to legitimise offenders by converting them into authorised
licensees.
C. Product counterfeiting has not yet spread to high-technology products and services.
D. All the alternatives are incorrect.

ANS: C PTS: 1 DIF: Difficult REF: Product counterfeiting

3. Which of the following is correct?

A. The country of origin of a product, typically communicated by the phrase ‘Made in (country)’, does not have a
considerable influence on the quality perceptions of a product.
B. In some markets consumers prefer imports of all kinds over domestic items.
C. Country-of-origin effects tend to be stronger as consumers become more informed.
D. All of these choices.

ANS: B PTS: 1 DIF: Moderate REF: Product characteristics

4. Which of the following is not a factor in encouraging standardisation?

A. Economies of scale in production

B. Economies in product R&D
C. Local competition
D. Economies in marketing

ANS: C PTS: 1 DIF: Difficult REF: The market environment

5. Which of the following is not a factor in encouraging adaptation?

A. Global competition
B. Differing use conditions
C. Differing consumer behaviour patterns
D. True to marketing concept

ANS: A PTS: 1 DIF: Difficult REF: The market environment

 6. All of the following are factors in encouraging adaptation except:

A. differing consumer behaviour patterns.

B. local competition.
C. global competition.
D. differing use conditions.

ANS: C PTS: 1 DIF: Difficult REF: The market environment

7. What are the three conditions that generally require product adaptation in consumer goods?

A. R&D time, falling revenue and target market expectations

B. Falling profit, market share and economic conditions
C. Cultural grounding, economic conditions and target markets
D. Falling revenue, target markets and layout

ANS: C PTS: 1 DIF: Moderate REF: The market environment

8. In deciding the form in which the product is to be marketed abroad, the firm should consider a few sets of factors.
Which of the following is not a set of factors for consideration?

A. The market(s) that have been targeted

B. The product and its characteristics
C. Company characteristics
D. Competitive characteristics

ANS: D PTS: 1 DIF: Moderate REF: The market environment

9. Companies are attempting to develop global products by incorporating differences regionally or worldwide into
one basic design:

A. but this is not pure standardisation.

B. but is not pure adaptation.
C. that is not so different from obtaining inputs from the intended markets.
D. that is an example of adaptability built into the standardised core.

ANS: A PTS: 1 DIF: Difficult REF: The market environment

10. Which of the following is not a non-tariff barrier?

A. Product standards
B. Advertising standards
C. Testing or approval procedures
D. Bureaucratic red tape

ANS: B PTS: 1 DIF: Moderate REF: The market environment

11. Which of the following is not a factor to be considered when deciding the form in which a product is to be
marketed abroad?

A. The markets
B. The amount of profit
C. The product and its characteristics
D. Company resources and policy

ANS: B PTS: 1 DIF: Difficult REF: The market environment

12. What is not an example of non-tariff barriers?

A. France requires the use of the French language in any offer, presentation or advertisement, whether written or
spoken.
B. Product testing and certification requirements have made the entry of many foreign companies into Japanese
markets quite difficult.
C. Since the EU chose ISO 9000 as a basis to harmonise varying technical norms of its member states, some of its
trading partners have accused it of erecting a new trade barrier against outsiders.
D. All of the alternatives are incorrect.

ANS: D PTS: 1 DIF: Difficult REF: The market environment

13. All of the following are examples of augmented products, except:

A. brand name.
B. installation.
C. delivery and credit.
D. after-sales service.

ANS: A PTS: 1 DIF: Easy REF: Product variables

14. Which is not one of the alternatives in approaching international markets?

A. Selling the product as is in the product marketplace

B. Designing new products for the domestic market
C. Modifying products of new countries or regions
D. Incorporating all the differences into the one product and introducing a global product

ANS: B PTS: 1 DIF: Difficult REF: Product variables

15. Which of the following term refers to the mental image that a brand, or the company as a whole, evokes?

A. Positioning
B. Advertising
C. Promotion
D. Placement

ANS: A PTS: 1 DIF: Moderate REF: Product characteristics

16. The product adaptation decision is as influenced by _______ as by governmental influences.

A. the company’s policy and profit model

B. economic social and climactic conditions
C. the characteristics and behaviour of intended customer groups
D. All of these choices

ANS: C PTS: 1 DIF: Easy REF: The market environment

17. Climate and geography will usually have an effect on the total product offering. Which of the following is not
expected to have such an effect?

A. Positioning
B. The core product
C. Tangible elements, mainly packaging
D. Augmented features

ANS: A PTS: 1 DIF: Moderate REF: The market environment

18. Three groups of factors that determine cultural and psychological specificity in relation to products and services
are:

A. economic performance, usage patterns and cultural adaptability.

B. economic changes, consumption patterns and cultural acceptability.
C. consumption patterns, psychosocial characteristics and general cultural criteria.
D. social norms, cultural patterns and psychological acceptability.

ANS: C PTS: 1 DIF: Moderate REF: The market environment

19. Consumption patterns affecting product adaptation include:

A. pattern of purchase and pattern of usage.

B. pattern of usage and social acceptability pattern.
C. pattern elements and social acceptability pattern.
D. pattern of purchase and element pattern.

ANS: A PTS: 1 DIF: Moderate REF: The market environment

20. If a firm markets a drastically simplified version of a product:

A. it is probably operating in a developing market.

B. this is probably in response to a lack of purchasing power or usage conditions.
C. this is known as backwards innovation.
D. All of these choices

ANS: D PTS: 1 DIF: Difficult REF: The market environment

21. To avoid problems with brand names, several approaches have been suggested. Which of the following is not an
approach?

A. Translation
B. Transliteration
C. Transculture.
D. Transcendence

ANS: D PTS: 1 DIF: Difficult REF: Product characteristics

22. In international marketing, the brand:

A. is made up of vocalisable and non-vocalisable parts.

B. is difficult to establish worldwide even though brand names travel well.
C. is a generic term referring to a product feature but this term is often confused with the electronic ‘brand’
identification system used in many countries.
D. is made up of vocalisable and tangible parts.

ANS: A PTS: 1 DIF: Difficult REF: Product characteristics

23. Three approaches are suggested for developing brand names for the international market are:

A. transcultural, transliteration and transparency.

B. transliteration, transparency and translation.
C. transparency, translation and transformation.
D. None of the above

ANS: D PTS: 1 DIF: Moderate REF: Product characteristics

24. Packaging serves which three major functions?

A. Protection, promotion and user convenience

B. Promotion, user information and branding
C. Convenience, brand promotion and adherence to government regulations
D. Brand promotion, user convenience and labelling

ANS: A PTS: 1 DIF: Moderate REF: Product characteristics

25. Which of the following is not an action against counterfeiting?

A. Legislative action
B. Bilateral and multilateral negotiations
C. Joint private sector action
D. Industry efforts

ANS: D PTS: 1 DIF: Moderate REF: Product characteristics

26. Country of origin effects:

A. lessen as customers become more informed.

B. include non-stereotypical views of product quality.
C. increase as customers become more informed.
D. include price increases due to local taxes and tariffs.

ANS: A PTS: 1 DIF: Difficult REF: Product characteristics

27. Counterfeit goods are:

A. any goods bearing an unauthorised representation of a trademark.

B. any goods bearing an unauthorised representation of a copyrighted work.
C. any goods bearing an unauthorised representation of a patented invention.
D. All of these choices

ANS: D PTS: 1 DIF: Moderate Product counterfeiting

28. Which category of product experiences the most homogenous demand from all international markets?

A. Food
B. Consumer non-durables
C. Industrial products
D. Technology-intensive products

ANS: D PTS: 1 DIF: Difficult REF: The market environment

29. Non-tariff barriers:

A. are usually in place to keep foreign products out of a market.

B. are usually designed to protect domestic producers.
C. are usually designed to make domestic producers more efficient.
D. are usually in place to keep foreign products out of a market and are usually designed to protect domestic
producers.

ANS: D PTS: 1 DIF: Easy REF: The market environment

30. The name, term, symbol, sign or design used by a firm to differentiate its offerings from those of its competitors is
called the:

A. trademark.
B. market position.
C. brand.
D. image.

ANS: C PTS: 1 DIF: Moderate REF: Product characteristics

31. Which of the following statements is incorrect?

A. Adaptations in product styling, colour, size and other appearance features are more common in industrial
marketing than consumer marketing.
B. Products that rely heavily on written or spoken language have to be adapted for better penetration of the
market.
C. When a product sold overseas requires repairs, parts or service, the problem of obtaining, training and holding
onto sophisticated engineering or repair staff is not easy.
D. All the alternatives are incorrect.

ANS: A PTS: 1 DIF: Difficult REF: Product characteristics

32. Which of the following is not part of company considerations in factors affecting product-adaptation decisions?

A. Market opportunity
B. Cost of adapting
C. Customer characteristics, expectations and preferences
D. Resources

ANS: C PTS: 1 DIF: Difficult REF: Product characteristics

33. What is not a factor that affects decision related to product adaptation?

A. Regional, country or local characteristics

B. National characteristics
C. Product characteristics
D. Company considerations

ANS: B PTS: 1 DIF: Difficult REF: Product variables

34. Warranties can be uniform in the international market if:

A. use conditions do not vary dramatically.

B. if the company is actually capable of delivering on its promise everywhere.
C. market conditions demand uniform warranties.
D. use conditions do not vary dramatically and if the company is actually capable of delivering on its promise
everywhere.

ANS: D PTS: 1 DIF: Difficult REF: Product characteristics

35. The _________ product – for example, the component of a personal computer or the recipe for a soup – may
indeed be the same as or highly similar to those of competitors, leaving the marketer with the other tangible
and__________ features of the product with which to achieve differentiation.

A. core; augmented
B. potential; augmented
C. core; potential
 D. augmented, potential

ANS: A PTS: 1 DIF: Easy REF: Product characteristics

Short answer

1. What are some of the cautions an international marketer should be aware of when making a decision to enter a
foreign market in regards to standardisation and adaptation?

ANS:
Marketers may routinely exaggerate the attractiveness of international markets, especially in terms of their
similarity. Despite the dramatic impact of globalisation as far as market convergence is concerned, distances,
especially cultural and economic, challenge the marketer to be vigilant. The international marketer must pay
careful attention to variables that may call for an adaptation in the product offering. The target market will
influence the adaptation decision through factors such as government regulation and customer preferences and
expectations. The product itself may not be in a form ready for international market entry in terms of its brand
name, its package or its appearance.

PTS: 1 DIF: Moderate REF: The market environment

2. What are some questions that the management should when deciding whether they should or should not adapt a
product to an international market?

ANS:
Before launching a product in the international marketplace, the marketer needs to consider organisational
capabilities as well as the nature of the product and the level of adaptation needed to accommodate various
market-related differences between domestic and international markets. The issue of product adaptation most
often climaxes in the question: ‘Is it worth it?’ The answer depends on the firm’s ability to control costs, correctly
estimate market potential and, finally, secure profitability, especially in the long term. The question that used to be
posed as ‘Can we afford to do it?’ should now be ‘Can we afford not to do it?’

PTS: 1 DIF: Moderate REF: Company consideration

3. Explain how international marketers can fight against intellectual property violation.

ANS:
The first task is to use patent application or registration of trademarks or mask works (for semiconductors). The
rights granted by a patent, trademark, copyright or mask work registration in home country confer no protection in
a foreign country, because unfortunately there is no such thing as an international patent, trademark or copyright.
After securing valuable intellectual property rights, the international marketer must act to enforce, and have
enforced, these rights. Four types of action against counterfeiting are legislative action, bilateral and multilateral
negotiations, joint private sector action and measures taken by individual companies.

PTS: 1 DIF: Difficult REF: The market environment