IIA Certified Internal IIA-CIA-PART4 Questions & Answers

• Question 521:

  A country has a comparative advantage in international trade when

  A. Firms in the country have a lower cost of production because of natural resources.

  B. It has an absolute advantage with respect to at least one input to production.

  C. Firms in the country have a lower cost of production because of transportation and other geographic factors.

  D. It produces whatever it can produce most efficiently.

  Correct Answer: D

  A country has a comparative advantage when it can achieve a lower cost of production due to a focus on and a cooperative specialization in a particular product. The greatest advantage from trade is obtained when each nation specializes in producing what it can produce most efficiently. If nations specialize and then exchange with others, more is produced and consumed than if each nation tries to be self-sufficient. Specialization of labor is beneficial for individuals; the same principle applies to nations.

• Question 522:

  Which strategy for a global marketing organization emphasizes relatively strong central control?

  A. Global.

  B. Multinational.

  C. Creation of an international division.

  D. Global

  Correct Answer: A

  A global strategy regards the world as one market. The product is essentially the same in all countries. Central control of the production process is relatively strong. Faster product development and lower production cost are typical.

• Question 523:

  Which method of expanding into international markets is most likely the riskiest?

  A. A local storage and sale arrangement.

  B. Local component assembly.

  C. Direct investment.

  D. Joint venture.

  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 524:

  The three major factors favoring globalization are

  A. Cultural, commercial, and technical.

  B. Flexibility, proximity, and adaptability.

  C. Political, technological, and social.

  D. Ambition, positioning, and organization.

  Correct Answer: C

  The new economy is driven by the digital revolution that facilitates international commerce by providing capabilities that did not exist a relatively few years ago. It is also driven by such political events as the fall of the Soviet Union, the participation of China in the world economic system, the emergence of the European Union, and the creation of other regional free trade zones. These technological and political factors are intertwined with social changes, for example, greater concern for the rights of women and minorities; the advance of multilingualism; and the convergence of tastes in fashion, music, and certain other cultural factors. Accordingly, these factors favor globalization by reducing trade barriers, reducing cost of coordination, increasing economies of scale, and encouraging standardization and global branding.

• Question 525:

  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 526:

  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 527:

  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 528:

  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 529:

  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 530:

  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.