CHAPTER 1 The Nature of Strategic Management True/False Introduction 1. The underpinnings of strategic management hinge on managers gaining an understanding of competitors, markets, prices, suppliers, distributors, governments, creditors, shareholders and customers worldwide. Ans: TPage: 4 2. Although the Internet has increased in popularity, it has actually led to increases in company expenses. Ans: FPage 4 3. Consumer e-commerce is five times greater than business-to-business e-commerce. Ans: FPage 4 What Is Strategic Management? 4. Optimizing for tomorrow the trends of today is the purpose of strategic management.
Ans: FPage: 5 5. Even though useful, strategic planning has been cast aside by corporate America since the early 1990s. Ans: FPage: 5 Resource allocation is included in strategy-formulation activities. Ans: TPage: 5 6. The terms strategic management and strategy implementation are synonymous. Ans: FPage: 5 7. A vision statement is, in essence, a company’s game plan. Ans: FPage: 5 8. Strategy implementation is often considered to be the most difficult stage in the strategic-management process because it requires personal discipline, commitment and sacrifice. Ans: TPage: 6 9.
The final stage in strategic management is strategy implementation. Ans: FPage 6 10. Strategy formulation, implementation and evaluation activities occur at three hierarchical levels in a large diversified organization: corporate, divisional and functional. Ans: T Page: 6 11. One of the fundamental strategy evaluation activities is reviewing external and internal factors that are the bases for current strategies. Ans: TPage: 6 12. An objective, logical, systematic approach for making major decisions in an organization is a way to describe the strategic-management process.
Ans: TPage: 7 13. Strategic management is an attempt to organize qualitative and quantitative information in a way that allows effective decisions to be made under conditions of uncertainty. Ans: TPage: 7 14. Analytical and intuitive thinking should complement each other. Ans: T Page: 7 15. According to Albert Einstein, “Knowledge is far more important than intuition. ” Ans: FPage 7 16. Management by intuition can be defined as operating from the “I’ve-already-made-up-my-mind-don’t-bother- me-with-the-facts mode. ” Ans: FPage 7 17.
By monitoring external events, companies should be able to identify when change is required. Ans: FPage: 8 Key Terms in Strategic Management 18. Anything the firm does especially well compared to rival firms could be considered a competitive advantage. Ans: TPage 8 19. Once a firm acquires a competitive advantage, they are usually able to sustain the competitive advantage for an extended period of time. Ans: FPage 9 20. Newspaper companies in the United States provide a good example of how a company can sustain a competitive advantage over the long term. Ans: FPage 9 21.
In order for a firm to achieve sustained competitive advantage, a firm must continually adapt to changes in external trends and events and effectively formulate, implement, and evaluate strategies that capitalize upon those factors. Ans: TPage: 9 22. Strategists are usually found in higher levels of management and have considerable authority for decision-making in the firm. Ans: TPage: 10 23. The middle manager is the most visible and critical strategic manager. Ans: FPage: 10 24. All strategists have similar attitudes, values, ethics and concerns for social responsibility. Ans: FPage: 10 5. A vision statement answers the question, “What is our business? ,” whereas a mission statement answers, “What do we want to become? ” Ans: FPage: 10-11 26. In the last five years, the position of chief strategy officer (CSO) has diminished in comparison to other top management ranks of many organizations. Ans: FPage: 10 27. A clear mission statement describes the values and priorities of an organization. Ans: TPage: 10 28. As of 2004, Wal-Mart was the largest corporation in the world. Ans: TPage 11 29. Strengths and weaknesses are determined relative to competitors. Ans: T Page: 12 30.
In a multidivisional firm, objectives should be established for the overall company and not for each division. Ans: FPage: 13 31. Objectives should be measurable, quantitative, challenging, realistic, consistent and prioritized. Ans: TPage: 13 32. Annual objectives are long-term milestones that organizations must achieve to reach short-term objectives. Ans: FPage: 13 33. Annual objectives are especially important in strategy formulation. Ans: FPage: 13 34. According to research, a healthier workforce can more effectively and efficiently implement strategies. Ans: TPage: 13 The Strategic-Management Model 5. Identifying an organization’s existing vision, mission, objectives and strategies is the final step for the strategic management process. Ans: FPage: 15 36. Once an effective strategy is designed, modifications are rarely required. Ans: FPage: 15 37. Application of the strategic-management process is typically more formal in larger and well-established organizations. Ans: TPage: 15 Benefits of Strategic Management 38. Followed by commitment, understanding is the most important benefit of strategic management. Ans: T Page: 16 39. The changes that occurred at Disney after Robert Iger took over as CEO xemplifies the fact that more and more organizations are centralizing the strategic-management process. Ans: FPage: 16 40. Firms with planning systems more closely resembling strategic-management theory generally exhibit superior long-term financial performance relative to their industry. Ans: T Page: 17 41. Low-performing firms typically underestimate their competitor’s strengths and overestimate their own firm’s strengths. Ans: TPage: 17 42. According to Greenley, strategic management provides a cooperative, integrated and enthusiastic approach to tackling problems and opportunities.
Ans: TPage: 18 Why Some Firms Do No Strategic Planning 43. The poor reward structure is one reason managers do not engage in strategic planning. Ans: TPage: 18 44. Crises and fires in an organization allows managers the training and time for effective strategic planning. Ans: FPage: 17 Pitfalls in Doing Strategic Planning 45. Top managers making many intuitive decisions that conflict with the formal plan is one pitfall managers should avoid in strategic planning. Ans: TPage: 19 46. Managers must be very formal in strategic planning because formality induces flexibility and creativity.
Ans: FPage: 19 Guidelines for Effective Strategic Management 47. An integral part of strategy implementation must be to evaluate the quality of the strategic-management process. Ans: FPage: 19 48. Strategic-management must be a self-reflective learning process that familiarizes managers and employees in the organization with key strategic issues and feasible alternatives for resolving those issues. Ans: TPage: 20 Business Ethics and Strategic Management 49. Today, managers and employees can be found personally liable if they ignore, conceal, or disregard a pollution problem.
Ans: TPage: 21 50. Merely having a code of ethics is not sufficient to ensure ethical business behavior. Ans: TPage: 23 51. An integral part of the responsibility of all managers is to provide ethical leadership by constant example and demonstration. Ans: TPage: 23 Comparing Business and Military Strategy 52. In most situations, business strategy is very different than military strategy. Ans: FPage: 25 The Nature of Global Competition 53. International operations can be as simple as exporting a product to a single foreign country. Ans: T Page: 28 54.
One risk in international operations is that nationalistic factions could seize the operations. Ans: TPage: 29 Conclusion 55. All organizations have a strategy from their inception, even if the strategy is informal, unstructured, and sporadic. Ans: TPage: 30 56. Nonprofit organizations have less need for strategic management because they are not interested in making a profit. Ans: F Page: 30 57. Firms can be more proactive with strategic management. Ans: TPage: 30 Multiple Choice Introduction 59. The term “environment” includes all of the following except: a. air. b. water. c. firms. d. atural resources. e. fauna. Ans: cPage: 4 60. The one factor that has most significantly impacted the nature and core of buying and selling in nearly all industries has been a. the Internet. b. political borders. c. corporate greed. d. customer and employee focus. e. the government. Ans: aPage: 4 What Is Strategic Management? 61. What can be defined as the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives? a. Strategy formulation b. Strategy evaluation c. Strategy implementation d. Strategic management . Strategic leading Ans: dPage: 5 62. ____________ is used to refer to strategic formulation, implementation and evaluation, with ______________ referring only to strategic formulation. a. Strategic planning; strategic management b. Strategic planning; strategic processing c. Strategic management; strategic planning d. Strategic management; strategic processing e. Strategic implementation; strategic focus Ans: cPage: 5 63. During what stage of strategic management are a firm’s specific internal strengths and weaknesses determined? a. Formulation b. Implementation c. Evaluation d. Feedback e.
Goal-setting Ans: aPage: 5 64. An important activity in __________ is taking corrective action. a. strategy evaluation b. strategy implementation c. strategy formulation d. strategy leadership e. all of the above Ans: aPage: 6 65. What step in the strategic development process involves mobilizing employees and managers to put strategies into action? a. Formulating strategy b. Strategy evaluation c. Implementing strategy d. Strategic advantage e. Competitive advantage Ans: cPage: 6 66. What types of skills are especially critical for successful strategy implementation? a. Interpersonal b. Marketing . Technical d. Conceptual e. Thinking Ans: aPage: 6 67. Which phase of strategic management is called the action phase? a. Strategy formulation b. Strategy implementation c. Strategy evaluation d. Allocating resources e. Measuring performance Ans: bPage: 6 68. __________ is not a strategy-implementation activity. a. Taking corrective actions b. Establishing annual objectives c. Devising policies d. Allocating resources e. Motivating employees Ans: aPage: 6 69. Strategy evaluation is necessary because a. internal and external factors are constantly changing. b. the SEC requires strategy evaluation. . competitors change their strategies. d. the IRS requires strategy evaluation. e. firms have limited resources. Ans: aPage: 6 70. Which statement best describes intuition? a. It represents the marginal factor in decision-making. b. It represents a minor factor in decision-making integrated with analysis. c. It should be coupled with analysis in decision-making. d. It is better than analysis in decision-making. e. It is management by ignorance. Ans: cPage: 7 71. _________ and _________ are external forces transforming business and society today. a. E-commerce; strategy b. E-commerce; globalization . Strategy; globalization d. Corporate culture; stakeholders e. Stakeholders; strategy Ans: bPage: 8 72. Anything that a firm does especially well compared to rival firms is referred to as: a. competitive advantage. b. comparative advantage. c. opportunity cost. d. sustainable advantage. e. an external opportunity. Ans: aPage: 8 Key Terms in Strategic Management 73. The trends in newspaper circulation in the United States provide support for which statement? a. Sustainable competitive advantage is easy to maintain. b. Several firms can have similar competitive advantages. c.
Some products are relatively immune to changes in the external environment d. Most competitive advantages are hard to sustain e. Competition is generally good for companies and consumers Ans: dPage 9 74. Which individuals are most responsible for the success and failure of an organization? a. Strategists b. Financial planners c. Personnel directors d. Stakeholders e. Human resource managers Ans: aPage: 10 75. The first step in strategic planning is generally: a. Developing a vision statement b. Establishing goals and objectives c. Making a profit d. Developing a mission statement . Determining opportunities and threats Ans: aPage: 10 76. What are enduring statements of purpose that distinguish one business from other similar firms? a. policies b. mission statements c. objectives d. rules e. employee conduct guidelines Ans: bPage: 10 77. The largest company in the world is: a. Honda Motor b. ING Group c. Wal-Mart d. Ford Motor Company e. Royal Dutch/Shell Group Ans: dPage: 10 78. Usually, external opportunities and threats are: a. uncontrollable by a single organization. b. controlled by governments. c. not as important as internal strengths and weaknesses. d. ey functions in strategy implementation. e. key functions in strategy exploitation. Ans: aPage: 12 79. Specific results an organization seeks to achieve in pursuing its basic mission are: a. strategies b. rules c. objectives d. policies e. mission Ans: cPage: 13 80. Internal __________ are activities in an organization that are performed especially well. a. opportunities b. competencies c. strengths d. management e. factors Ans: cPage: 13 81. What are the means by which long-term objectives will be achieved? a. strategies. b. strengths. c. weaknesses. d. policies. e. opportunities.
Ans: aPage: 13 82. Long-term objectives should be all of the following except: a. measurable. b. continually changing. c. reasonable. d. challenging. e. consistent. Ans: bPage: 13 83. __________ can best be described as short-term in nature. a. Mission statements b. Tenure c. Annual objectives d. Strategies e. Management Ans: cPage: 13 84. In which phase of strategic management are annual objectives especially important? a. formulation b. control c. evaluation d. implementation e. management Ans: dPage: 13 85. What are guides to decision making? a. laws b. rules c. policies d. procedures e. oals Ans: cPage: 13 The Strategic-Management Model 86. The strategic-management process a. occurs once a year. b. is a sequential process. c. is a continuous process. d. applies mostly to companies with sales greater than $100 million. e. applies mostly to small businesses Ans: cPage: 13 87. Which of the following is not included in the strategic management model? a. Measure and evaluate performance. b. Perform internal research to identify customers. c. Establish long-term objectives. d. Implement strategies. e. Develop mission and vision statements. Ans: bPage: 14 Benefits of Strategic Management 8. Strategic management enables an organization to __________, instead of companies just responding to threats in their business environment. a. be proactive b. determine when the threat will subside c. avoid the threats d. defeat their competitors e. foresee into the future Ans: aPage: 16 89. The act of strengthening employees’ sense of effectiveness by encouraging and rewarding them to participate in decision-making and exercise initiative and imagination is referred to as: a. Authoritarianism b. Proaction c. Empowerment d. Transformation e. Delegation Ans: cPage: 16 90.
How do line managers become “owners” of the strategy? a. by attending top manager meetings b. by gathering information about competitors c. by involvement in the strategic-management process d. by becoming a shareholder of the firm e. by buying off top managers Ans: cPage: 16 91. The changes that occurred when Robert Iger took over the reigns at Disney, demonstrate which current trend in organizations? a. increased formalization of the strategic management process b. increased structuring of strategic management c. increased decentralizing of strategic management d. increased emphasis on strategic planning . increased central planning of the strategic management process Ans: cPage 16 92. According to research, organizations using strategic management are __________ than those that do not. a. more profitable b. more complex c. less profitable d. less static e. less complex Ans: aPage: 17 93. According to Greenley, strategic management offers all of these benefits except that a. it provides an objective view of management problems. b. it creates a framework for internal communication among personnel. c. it encourages a favorable attitude toward change. d. it maximizes the effects of adverse conditions and changes. . it gives a degree of discipline and formality to the management of a business. Ans: dPage: 17- 18 Why Some Firms Do No Strategic Planning 94. What is not a reason given for poor or no strategic planning in organizations? a. Wasting of time b. Being content with success c. Fire-fighting d. Poor reward structure e. Trust of management Ans: ePage: 18-19 Pitfalls in Doing Strategic Planning 95. All of these are pitfalls an organization should avoid in strategic planning except: a. using plans as a standard for measuring performance. b. using strategic planning to gain control over decisions and resources. . failing to involve key employees in all phases of planning. d. too hastily moving from mission development to strategy formulation. e. being so formal in planning that flexibility and creativity are stifled. Ans: aPage: 19 96. What is not a pitfall an organization should avoid in strategic planning? a. Failing to communicate the plan to employees b. Involving all managers rather than delegating planning to a “planner” c. Top managers not actively supporting the strategic planning process d. Doing strategic planning only to satisfy accreditation or regulatory requirements Ans: bPage: 19 97.
Which of the following statements is false? a. Open-mindedness is an important guideline for effective strategic management. b. Strategic management must become a self-perpetuating socialist mechanism. c. No organization has unlimited resources. d. Strategic decisions require trade-offs. e. Strategic management must be a self-reflective learning process. Ans: bPage: 20 Business Ethics and Strategic Management 98. Principles of conduct that guide decision-making are known as a. human rights. b. the Constitution. c. business ethics. d. nonprofit organization policies. e. social responsibility requirements.
Ans: cPage: 20 99. A (n) ____________ can provide a basis on which policies can be devised to guide daily decisions and behavior at the work site. a. list of guidelines b. policy for safety c. vision statement d. code of business ethics e. annual objective Ans: dPage: 23 100. Because they must take the __________ of the firm, strategists’ salaries are high compared to those of other individuals in the organization. a. moral risks b. social risks c. environmental risks d. societal criticism e. employee criticism Ans: aPage: 23 101. What can be created by ethics training and an ethics culture? a.
Competitive responsibility b. Competitive advantage c. Strategic advantage d. Employee cooperation e. Comparative advantage Ans: cPage: 25 102. Which of these business actions is (are) always considered to be unethical? a. poor product or service safety b. using nonunion labor in a union shop c. dumping flawed products in a foreign market d. insider trading e. all of the above Ans: ePage: 25 103. Ethical standards come out of __________ in a final analysis. a. government b. competitors c. history and heritage d. stakeholder analysis e. community involvement Ans: cPage: 25 Comparing Business and Military Strategy 104.
A strong __________ heritage underlies the study of strategic management. a. military b. government c. political d. social e. cultural Ans: aPage: 25 105. Military strategy is based on an assumption of __________, whereas business strategy is based on an assumption of __________. a. conflict; cooperation b. conflict; competition c. cooperation; conflict d. competition; conflict e. cooperation; competition Ans: bPage: 26 The Nature of Global Competition 106. ____________ are organizations that conduct business operations across national borders. a. Domestic firms b. Multinational corporations c. Parent companies d.
Government-backed companies e. Franchises Ans: bPage: 28 107. A(n) __________ refers to a firm investing in international operations, while the _________ is the country where that business is conducted. a. parent company; host country b. home country; parent company c. parent country; host company d. host company; home country e. exporting company; importing company Ans: aPage: 28 108. The greatest advantage of international operations is: a. Reduced tariffs and taxes b. Spreading economic risks over a wider number of markets c. Access to global technology, culture and business practices d.
Gaining new customers e. Less-intense competition Ans: dPage: 28 109. All of these are potential disadvantages of an international operation except: a. overestimated weaknesses and underestimated strengths of competitors. b. differing languages, cultures and value systems. c. reduced tariffs and taxes. d. complexity due to a multiple monetary system. e. all of these are potential disadvantages. Ans: cPage: 29 Essay Questions 110. Compare and contrast strategic planning with strategic management. Strategic planning is more often used in the business world, whereas strategic management is often used in academia.
Sometimes, strategic management is used to refer to strategy formulation, implementation and evaluation, with strategic planning referring only to strategy formulation. The purpose of strategic management is to exploit and create new and different opportunities for tomorrow; long-range planning, in contrast, tries to optimize for tomorrow the trends of today. Page: 5 111. Which stage in the strategic-management process is most difficult? Explain why. Strategy implementation is the most difficult stage in the strategic-management process because it requires personal discipline, commitment and sacrifice.
Successful strategy implementation hinges upon managers’ ability to motivate employees, which is more of an art than a science. Page: 6 112. Explain the relationship between strategic management and competitive advantage for firms. How can a firm achieve sustained competitive advantage? Ans: Strategic management is all about gaining and maintaining competitive advantage. Competitive advantage is anything a firm does especially well compared to rival firms. When a firm can do something that rival firms cannot do, or owns something that rival firms desire, that can represent a competitive advantage.
Getting and keeping competitive advantage is essential for long-term success of an organization. A firm must strive to achieve sustained competitive advantage by (1) continually adapting to changes in external trends and events and internal capabilities, competencies and resources, and by (2) effectively formulating, implementing and evaluating strategies that capitalize upon those factors. Page: 8-9 113. Define what strategists are. Describe what they do in an organization. Strategists are individuals who are most responsible for the success or failure of an organization.
They help an organization gather, analyze and organize information. They track industry and competitive trends, develop forecasting models and scenario analyses, identify business threats and develop creative action plans. Strategic planners usually serve in a support or staff role. Usually found in higher levels of management, they typically have considerable authority for decision-making in the firm. Page: 9 114. Define and discuss the differences between vision and mission statements. Many organizations today develop a vision statement that answers the question “What do we want to become? Developing a vision statement is often considered the first step in strategic planning, preceding even development of a mission statement. Many vision statements are a single sentence. For example, the vision statement of Stokes Eye Clinic in Florence, South Carolina, is “Our vision is to take care of your vision. ” The vision of the Institute of Management Accountants is “Global leadership in education, certification, and practice of management accounting and financial management. ” Mission statements are “enduring statements of purpose that distinguish one business from other similar firms.
A mission statement identifies the scope of a firm’s operations in product and market terms. ” It addresses the basic question that faces all strategists: “What is our business? ” A clear mission statement describes the values and priorities of an organization. Developing a mission statement compels strategists to think about the nature and scope of present operations and to assess the potential attractiveness of future markets and activities. A mission statement broadly charts the future direction of an organization. Page: 11 115. Discuss some forces that influence the formality of strategic-management systems.
Firms that compete in complex, rapidly changing environments, such as technology companies, tend to be more formal in strategic planning. Firms that have many divisions, products, markets and technologies also tend to be more formal in applying strategic-management concepts. Greater formality in applying the strategic-management process is usually positively related with the cost, comprehensiveness, accuracy and success of planning across all types and sizes of organization. Page: 14-15 116. List 10 major benefits of strategic management, as stated by Greenley. There are 14 benefits stated by Greenley.
Students are to list any 10 of the following: (1) it allows for identification, prioritization and exploitation of opportunities, (2) it provides an objective view of management problems, (3) it represents a framework for improved coordination and control of activities, (4) it minimizes the effects of adverse conditions and changes, (5) it allows major decisions to better support established objectives, (6) it allows more effective allocation of time and resources to identified opportunities, (7) it allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions, (8) it creates a framework for internal communication among personnel, (9) it helps integrate the behavior of individuals into a total effort, (10) it provides a basis for clarifying individual responsibilities, (11) it encourages forward thinking, (12) it provides a cooperative, integrated and enthusiastic approach to tackling problems and opportunities, (13) it encourages a favorable attitude toward change, and (14) it gives a degree of discipline and formality to the management of a business. Page: 16-17 117. Give at least seven reasons why some firms do no strategic planning. Ans: Some reasons for poor or no strategic planning are as follows: Poor reward structures, fire-fighting, waste of time, too expensive, laziness, content with success, fear of failure, overconfidence, prior bad experience, self-interest, fear of the unknown, honest difference of opinion, and suspicion. Page: 17-18 118. What are the pitfalls in strategic planning that management in an organization should watch out for or avoid? Identify any five pitfalls. There are 13 pitfalls.
Students should list any five of the following: (1) using strategic planning to gain control over decisions and resources; (2) doing strategic planning only to satisfy accreditation or regulatory requirements; (3) too hastily moving from mission development to strategy formulation; (4) failing to communicate the plan to employees, who continue to work in the dark; (5) top managers making many intuitive decisions that conflict with the formal plan; (6) top managers not actively supporting the strategic-planning process; (7) failing to use plans as a standard for measuring performance; (8) delegating planning to a “planner” rather than involving all managers; (9) failing to involve key employees in all phases of planning; (10) failing to create a collaborative climate supportive of change; (11) viewing planning to be unnecessary or unimportant; (12) becoming so engrossed in current problems that insufficient or no planning is done; and (13) being so formal in planning that flexibility and creativity are stifled. Page: 18 119. Explain the significance of the ISO (International Organization for Standardization). What are the purposes of ISO 9000, ISO 14000, and ISO 14001? Ans: The ISO is based in Geneva, Switzerland and is a network of the national standards institutes of 147 countries. The ISO is the world’s largest developer of standards and is widely accepted worldwide.
ISO standards are voluntary, since the organization has no legal authority to enforce their implementation. However, many companies that are not ISO certified often cannot get work. ISO 9000 focuses on quality control and ISO 14000 focuses on operating in an environmentally-friendly manner. ISO 14000 refers to a series of voluntary standards in the environmental field. ISO 14001 is similar to ISO 14000 because it is also an environmental standard. ISO 14001 is a standard for Environmental Management Systems. Standards include environmental auditing, environmental performance evaluation, environmental labeling, and life-style assessment. ISO 14001 standards offer a universal technical standard for environmental compliance. Page: 21-22 120.
Explain what Drucker means when he says, “Trees die from the top. ” “Trees die from the top,” can be explained as ‘top management creates organizational spirit. ’ When top management’s spirit dies, so does the rest of the company’s spirit. This leads to the downfall, or death, of the company. Page: 22-24 121. Compare and contrast business and military strategy. Business and military strategy are very similar. A key aim of both business and military strategy is “to gain competitive advantage. ” They both also try to use their own strengths to exploit competitor’s weaknesses. Happiness is not a result of accidental strategies in either business or military organizations.
The element of surprise provides great competitive advantages in both military and business strategy; information systems that provide data on opponents’ or competitors’ strategies and resources are also vitally important. Finally, both business and military organizations must adapt to change and constantly improve to be successful. While business and military strategy are the same in many ways, they have one major difference—business strategy is formulated, implemented and evaluated with an assumption of competition, whereas military strategy is based on an assumption of conflict. Page: 24-25 122. What are the advantages and disadvantages of having international operations? Explain.
International operations create many advantages for a company: 1) Foreign operations can absorb excess capacity, reduce unit costs and spread economic risks over a wider number of markets; 2) foreign operations can allow firms to establish low-cost production facilities in locations close to raw materials and/or cheap labor; 3) competitors in foreign markets may not exist, or competition may be less intense than in domestic markets; 4) foreign operations may result in reduced tariffs, lower taxes and favorable political treatment in other countries; 5) joint ventures can enable firms to learn the technology, culture and business practices of other people and to make contacts with potential customers, suppliers, creditors and distributors in foreign countries; 6) many foreign governments and countries offer varied incentives to encourage foreign investment in specific locations; and 7) economies of scale can be achieved from operations in global rather than solely domestic markets.
Larger-scale production and better efficiencies allow higher sales volumes and lower price offerings. There are also numerous potential disadvantages of having internal operations: 1) nationalistic factions could seize foreign operations; 2) firms confront different and often little-understood social, cultural, demographic, environmental, political, governmental, legal, technological, economic and competitive forces when doing business internationally. These forces can make communication difficult between the parent firm and subsidiaries; 3) weaknesses of competitors in foreign lands are often overestimated, and strengths are often underestimated.
Keeping informed about the number and nature of competitors is more difficult when doing business internationally; 4) language, culture and value systems differ among countries, and this can create barriers to communication and problems managing people; 5) gaining an understanding of regional organizations is difficult but is often required in doing business internationally; 6) dealing with two or more monetary systems can complicate international business operations; and 7) the availability, depth and reliability of economic and marketing information in different countries varies extensively, as do industrial structures, business practices and the number and nature of regional organizations. Page: 27-28