Question: When is a company likely to choose (

> What are the advantages and disadvantages of limiting a firm’s activities to exporting compared to producing abroad?

> The decision about where to invest abroad is influenced by behavioral factors. a. Explain the behavioral approach to FDI. b. Explain the international network theory explanation of FDI.

> The currency risk associated with international diversification is a serious concern for portfolio managers. Is it possible for currency risk ever to benefit the portfolio’s return?

> How, according to portfolio theory, is the risk of the portfolio measured exactly?

> What types of risk are present in a diversified portfolio? Which type of risk remains after the portfolio has been diversified?

> How does the diversification of a portfolio change its expected returns and expected risks? Is this in principle any different for internationally diversified portfolios?

> When you are constructing your portfolio, you know you want to include Cementos de Mexico (Mexico), but you cannot decide whether you wish to hold it in the form of ADRs traded on the NYSE, or directly through purchases on the Mexico City Bolsa. a. Does

> Explain how currency swaps can hedge foreign exchange operating exposure. What are the accounting advantages of currency swaps?

> Firms with operations and assets across the globe, true MNEs, are in many ways as international in composition as the most internationally diversified portfolio of unrelated securities. Why do investors not simply invest in MNEs traded on their local exc

> As the newest member of the asset allocation team in your firm, you constantly find yourself being quizzed by your fellow group members. The topic is international diversification. One analyst asks you the following question: Security prices are driven

> Conceptually, how do the Sharpe and Treynor performance measures define risk differently? Which do you believe is a more useful measure in an internationally diversified portfolio?

> The key to managing operating exposure at the strategic level is for management to recognize a disequilibrium in parity conditions when it occurs, and to be prepositioned to react most appropriately. How can this task best be accomplished?

> The benefits of portfolio construction, domestically or internationally, arise from the lack of correlation among assets and markets. The increasing globalization of business is expected to change these correlations over time. How do you believe they wil

> When asked why they do not internationally diversify their portfolios, answer that “the risks are not worth the expected returns.” Using the theory of international diversification, how would you evaluate this statement?

> If the primary benefit of portfolio diversification is risk reduction, is the investor always better off choosing the portfolio with the lowest expected risk?

> Define in words (without graphics) how the optimal domestic portfolio is constructed.

> Nations typically structure their tax systems along one of two basic approaches: the worldwide approach or the territorial approach. Explain these two approaches and how they differ from each other.

> a. Define the term “tax neutrality.” b. What is the difference between domestic neutrality and foreign neutrality? c. What are a country’s objectives when determining tax policy on foreign-source income?

> Capital budgeting for a foreign project uses the same theoretical framework as does domestic capital budgeting. What are the basic steps in domestic capital budgeting?

> What is meant by the term “tax morality”?

> Why do the U.S. tax authorities tax passive income generated offshore differently from active income?

> How do tax treaties affect the operations and structure of MNEs?

> Answer the following questions: a. What is meant by the term “tax haven”? b. What are the desired characteristics for a country if it expects to be used as a tax haven? c. What are the advantages leading an MNE to use a tax haven subsidiary? d. What ar

> What are the major differences in translating assets between the current rate method and the temporal method?

> Section 482 of the U.S. Internal Revenue Code specifies use of a “correct” transfer price, and the burden of proof that the transfer price is “correct” lies with the company. What guidelines exist for determining the proper transfer price?

> Subsidiary Alpha in Country Able faces a 40% income tax rate. Subsidiary Beta in Country Baker faces only a 20% income tax rate. Presently each subsidiary imports from the other an amount of goods and services exactly equal in monetary value to what each

> What is a transfer price, and can a government regulate it? What difficulties and motives does a parent multinational firm face in setting transfer prices?

> a. What is a value-added tax? b. Although the value-added tax has been proposed numerous times, the Unites States has never adopted it. Why do you think the United States is so negative on it, when the value-added tax is widely used outside the United S

> What is a foreign tax credit? Why do countries give credit for taxes paid on foreign-source income?

> What is real option analysis? How is it a better method of making investment decisions than using traditional capital budgeting analysis?

> Explain how back-to-back loans can hedge foreign exchange operating exposure.

> What does the word translation mean? Why is translation exposure sometimes called accounting exposure?

> Plot the position of the following companies on Figure 8.3: Microsoft, Google, Coca-Cola, Dow Chemicals, Pfizer, and McDonald’s. In each case, justify your answer.

> What kind of companies stand to gain the most from entering into strategic alliances with potential competitors? Why?

> Licensing proprietary technology to foreign competitors is the best way to give up a company’s competitive advantage. Discuss.

> Discuss how the need for control over foreign operations varies with the strategy and distinctive competencies of a company. What are the implications of this relationship for the choice of entry mode?

> Are the following global standardization industries, or industries where localization is more important: bulk chemicals, pharmaceuticals, branded food products, moviemaking, television manufacture, personal computers, airline travel, and fashion retailin

> What do you think are the sources of sustained superior profitability?

> Cloud computing is still in its infancy. If business history teaches us anything, it is that events often do not turn out the way that planners thought they would. Given this, might it have been better for Microsoft do adopt a “wait and see” attitude? Wh

> If a related company begins to purchase unrelated businesses, in what ways should it change its structure or control mechanisms to manage the acquisitions?

> How prevalent has the agency problem been in corporate America during the last decade? During the late-1990s there was a boom in initial public offerings of Internet companies (dot. com companies). The boom was supported by sky high valuations often assi

> Is it ethical for a firm faced with a shortage of labor to employ illegal immigrants as labor?

> Under what conditions is it ethically defensible to outsource production to producers in the developing world who have much lower labor costs when such actions involve laying off long-term employees in the firm’s home country?

> In the 1970s and 1980s Palmisano states that IBM was organized as a classic multinational enterprise. What does this mean? Why do you think IBM was organized that way? What were the advantages of this kind of strategic orientation?

> In a public corporation, should the CEO of the company also be allowed to be the chairman of the board (as allowed for by the current law)? What problems might this give rise to?

> How might a company configure its strategy making processes to reduce the probability that managers will pursue their own self-interest at the expense of stockholders?

> Where the actions that John Thain took on personal perks and bonuses legal? Were they ethical? What does this case teach you about the difference between staying within the bounds of the law and behaving ethically?

> Discuss the accuracy of the following statement: Formal strategic planning systems are irrelevant for firms competing in high-technology industries where the pace of change is so rapid that plans are routinely made obsolete by unforeseen events.

> At the end of 2008, the financial markets were in the middle of the deepest crisis since the great depression. Losses were increasing in financial institutions by the hour as the value of their holdings of mortgage-backed securities plummeted. Given this

> Relate Cisco’s changes to its control and evaluation systems to the stages of growth in Greiner’s model.

> Identify Honeywell’s (www.honeywell.com) portfolio of businesses that can be found by exploring its Website. In how many different industries is Honeywell involved? Would you describe Honeywell as a related or unrelated diversification company? Has Honey

> Under which conditions are joint ventures a useful way to enter new industries?

> Imagine that IBM has decided to diversify into the telecommunications business to provide online “cloud computing” data services and broadband access for businesses and individuals. What method would you recommend that IBM pursue to enter this industry?

> According to the strategic choice framework introduced in this chapter, what strategy do you think IBM is pursuing today?

> What factors make it most likely that (a) Acquisitions or (b) Internal new venturing will be the preferred method to enter a new industry?

> In what ways has Samsung’s multi business model changed over time? Why did its top managers make these changes?

> Under what conditions might horizontal integration be inconsistent with the goal of maximizing profitability?

> What steps would you recommend that a company take to build mutually beneficial long-term cooperative relationships with its suppliers?

> What are the strengths of formal strategic planning? What are its weaknesses?

> What value-creation activities should a company outsource to independent suppliers? What are the risks involved in outsourcing these activities?

> Why was it profitable for GM and Ford to integrate backward into component-parts manufacturing in the past, and why are both companies now buying more of their parts from outside suppliers?

> What is the difference between a company’s internal value chain and the industry value chain? What is the relationship between vertical integration and the industry value chain?

> How has Cisco changed its structure and control systems?

> What are the advantages and disadvantages associated with these strategies?

> What is different about high-tech industries? Were all industries once high tech?

> Reread the opening case on the emerging format war for high definition DVD players. On the basis of the information contained in this case, which company do you think will most likely win this format war: Sony or Toshiba? Why?

> What is the relationship among organizational structure, control, and culture? Give some examples of when and under what conditions a mismatch among these components might arise.

> You are a manager for a major music record label. Last year, music sales declined by 10%, primarily because of very high piracy rates for CDs. Your boss has asked you to develop a strategy for reducing piracy rates. What would you suggest that the compan

> You are working for a small company that has developed an operating system for PCs that is faster and more stable than Microsoft’s Windows operating system. What strategies might the company pursue to unseat Windows and establish its own operating system

> You work for a small company that has the leading position in an embryonic market. Your boss believes that the company’s future is ensured because it has a 60% share of the market, the lowest cost structure in the industry, and the most reliable and high

> Why are standards so important in high-tech industries? What are the competitive implications of this?

> Google licenses its Android OS to phone manufacturers for free. Why would it do this?

> What do we mean by strategy? How is a business model different from a strategy?

> Apple and Google are pursuing different strategies— Apple sells the device and the OS as a bundle (the iPhone), whereas Google does not make devices and licenses its Android OS phones to other device makers. Both companies are gaining share. What does th

> Why did Apple place such emphasis on the applications that run on the iPhone? What is it trying to achieve by heavily promoting applications? Why did other companies rush to copy Apple’s strategies?

> What are the key problems in maintaining a competitive advantage in embryonic and growth industry environments? What are the dangers associated with being the leader in an industry?

> Why are industries fragmented? What are the primary ways in which companies can turn a fragmented industry into a consolidated industry?

> What kinds of strategies might: (a) A small pizza place operating in a crowded college market, and (b) A detergent manufacturer seeking to unveil new products in an established market use to strengthen their business models?

> What kind of structure, controls, and culture would you be likely to find in (a) A small manufacturing company, (b) A chain store, (c) A high-tech company, and (d) A Big Four accounting firm?

> Discuss how companies can use: (a) Product differentiation, and (b) Capacity control to manage rivalry and increase an industry’s profitability.

> What investment strategies should be made by: (a) Differentiators in a strong competitive position, and (b) Differentiators in a weak competitive position, while managing a company’s growth through the life cycle?

> How has competition changed the strategies behind the InterContinental Hotels Group’s business model over time?

> Why did Holiday Inn’s business model and strategies change over time?

> When would a company decide to change from a functional to a multidivisional structure?

> What is the value creation frontier? How does each of the four generic business models allow a company to reach this frontier?

> Why does each generic business model require a different set of business-level strategies? Give examples of pairs of companies in: (a) The computer industry; (b) The electronics industry; and (c) The fast-food industry that pursue different types of b

> What are some of the reasons companies lose control over their business models, and thus their competitive advantage, over time?

> Why is strategic-group analysis important for superior competitive positioning?

> What strategies does a company need to develop to become a broad differentiator? In what ways does this provide the company with a competitive advantage over cost leaders? Over differentiators?

> How can companies pursuing cost leadership and differentiation lose their place on the value frontier? In what ways can companies regain their competitive advantage?

> For each of the structures discussed in the chapter, outline the most suitable control systems.

> In what ways is Southwest trying to improve its competitive advantage in 2011?

> How are the four generic building blocks of competitive advantage related to each other?

> From what perspective might innovation be called “the single most important building block” of competitive advantage?

> What are the problems associated with implementing a strategy of related diversification through acquisitions?

> Over time, will the adoption of Six Sigma quality improvement processes give a company a competitive advantage, or will it be required only to achieve parity with competitors?

> What role can top management play in helping a company achieve superior efficiency, quality, innovation, and responsiveness to customers?

> What are the primary implications of the material discussed in this chapter for strategy formulation?

> Which is more important in explaining the success and failure of companies: strategizing or luck?

> Why is it important to understand the drivers of profitability, as measured by the return on invested capital?