IIA Certified Internal IIA-CIA-PART3 Questions & Answers

• Question 921:

  The creation of regional free trade zones is a global phenomenon. Trade barriers are lowered in these areas, and other steps are taken to promote economic cooperation. For example, a common currency has been adopted by the nations of:

  A. NAFTA.

  B. Mercosul.

  C. APEC.

  D. The European Union.

  Correct Answer: D

  The European Union (Eli) is a collection of 27 European nations that have lowered trade barriers among member states, and most of the nations share a common currency and trade policy. The euro is the common currency of the European Union.

• Question 922:

  Which strategy for a global marketing organization balances local responsiveness and global integration?

  A. Global.

  B. Multinational.

  C. Glocal.

  D. Transnational.

  Correct Answer: C

  A glocal strategy combines some elements of local responsiveness or adaptation with some elements of global integration. Successful telecommunications firms are examples of balancing these elements. Local responsiveness is indicated when local product tastes and preferences, regulations, and barriers are significant. Global integration is indicated when demand is homogeneous and economies of productive scale are large.

• Question 923:

  Which strategy for a global marketing organization is based on a portfolio of national markets?

  A. reaction of a division to manage international marketing.

  B. A multinational strategy.

  C. A global strategy.

  D. Creation of an export department

  Correct Answer: B

  International marketing efforts take three basic forms:creation of an export department, creation of a division to manage international marketing, or global organization. The latter encompasses genuinely worldwide functions, e.g., manufacturing, marketing, finance, and logistics. Thus, worldwide operations are the organization's focus, not merely that of a department or division of a national firm. A global organization may follow a multinational, global, or glocal strategy. A multinational strategy adopts a portfolio approach. Its emphasis is on national markets because the need for global integration is not strong. The product is customized for each market and therefore incurs higher production costs. Decision making is primarily local with a minimum of central control. This strategy is most effective given large differences between countries. Also, exchange rate risk is reduced when conducting business in this manner.

• Question 924:

  A firm that moves from not exporting on a regular basis to establishing plants in foreign countries has

  A. Globalized.

  B. Nationalized.

  C. Glocalized.

  D. Internationalized.

  Correct Answer: D

  The internationalization process is of crucial interest to nations that wish to encourage local firms to grow and to operate globally. According to Swedish researchers, it involves the following steps:

  (1)

  Lack of regular exports;

  (2)

  export via independent agents with a few markets, with later expansion to more countries;

  (3)

  creation of sales subsidiaries in larger markets; (4) establishment of plants in foreign countries.

• Question 925:

  An advantage of a direct investment strategy when entering a foreign market is

  A. Reduction in the capital at risk.

  B. Shared control and responsibility.

  C. Assurance of access when the foreign country imposes domestic content rules.

  D. Avoidance of interaction with the local bureaucracy.

  Correct Answer: C

  Direct investment has many advantages:

  (1)

  cheaper materials or labor,

  (2)

  receipt of investment incentives from the host government, (3) a strong relationship with interested parties in the host country, (4) control of the investment,

  (5)

  a better image in the host country,

  (6)

  market access when domestic contest rules are in effect. However, direct investment is risky because of exposure to currency fluctuations, expropriation, potentially high exit barriers, and restraints on sending profits out of the country.

• Question 926:

  The least risky method of entering a market in a foreign country is by

  A. Indirect exports.

  B. Licensing.

  C. Direct exports.

  D. Direct investments.

  Correct Answer: A

  An indirect export strategy operates through intermediaries, such as home-country merchants who buy and resell the product, home-country agents who negotiate transactions with foreign buyers fora commission, cooperatives that represent groups of sellers, and export-management firms that receive fees for administering the firm's export efforts. Indirect export requires lower investment than direct export and is less risky because of the intermediaries' expertise.

• Question 927:

  A firm wishing to become global must consider how many national markets to enter. A firm should enter fewer national markets when

  A. Communication adaptation costs are low.

  B. The product need not be adapted.

  C. Entry costs are low.

  D. The first countries chosen are heavily populated and have high incomes.

  Correct Answer: D

  According to Ayal and Zif, the following are factors indicating that few national markets should be entered:

  (1)

  entry costs are high;

  (2)

  market control costs are high;

  (3)

  product adaptation costs are high;

  (4)

  communication adaptation costs are high;

  (5)

  the first countries selected have large populations, high incomes, and high income growth;

  (6)

  a dominant firm can erect high entry barriers.

• Question 928:

  A firm expands into international markets to

  A. Be in foreign markets.

  B. Eliminate foreign competition

  C. Pursue new, higher-profit opportunities.

  D. Preclude piracy of the firm's products.

  Correct Answer: C

  A firm may decide to go abroad for many reasons, for example, to respond to a competitive challenge in its home country by another global firm, to pursue opportunities yielding greater profits, to achieve economies of scale, to diversify, or to follow customers who need international service.

• Question 929:

  A global firm

  A. Has achieved economies of scale in the firm's domestic market.

  B. Plans, operates, and coordinates business globally.

  C. Relies on indirect export.

  D. Tends to rely more on one product market.

  Correct Answer: B

  According to Kotler, "Global firms plan, operate, and coordinate their activities on a worldwide basis." Thus, a global firm secures cost or product differentiation advantages not available to domestic firms.

• Question 930:

  When a multinational firm decides to sell its products abroad, one of the risks the firm faces is that the government of the foreign market charges the firm with dumping. Dumping occurs when

  A. The same product sells at different prices in different countries.

  B. A firm charges less than the cost to make the product so as to enter or win a market.

  C. Lower quality versions of the product are sold abroad so as to be affordable.

  D. Transfer prices are set artificially high so as to minimize tax payments.

  Correct Answer: B

  Dumping is an unfair trade practice that violates international agreements. It occurs when a firmcharges a price (1) lower than that in its home market or (2) less than the cost to make the product. Dumping may be done to penetrate a market or as a result of export subsidies.