DBA Global Business Strategy and International Management 1 — Questions and Answers
Question 1: Which entry mode gives a firm the highest degree of control over its international operations but also carries the highest financial risk?
- Licensing
- Joint venture
- Wholly owned subsidiary (Correct answer)
- Franchising
Correct answer: Wholly owned subsidiary
A wholly owned subsidiary means the firm owns 100% of the foreign operation, granting full control but requiring the largest capital commitment and absorbing all risk.
Question 2: Porter's Diamond Model identifies four determinants of national competitive advantage. Which of the following is NOT one of them?
- Factor conditions
- Demand conditions
- Currency exchange rates (Correct answer)
- Related and supporting industries
Correct answer: Currency exchange rates
Porter's Diamond consists of factor conditions, demand conditions, related and supporting industries, and firm strategy/structure/rivalry; exchange rates are not a core determinant.
Question 3: A company that standardizes its products globally while adapting its marketing messages to local cultures is following which international strategy?
- Multidomestic strategy
- Transnational strategy (Correct answer)
- Global standardization strategy
- Home replication strategy
Correct answer: Transnational strategy
A transnational strategy seeks to achieve both global efficiency through standardization and local responsiveness through cultural adaptation simultaneously.
Question 4: The Uppsala model of internationalization suggests that firms expand abroad in a sequence primarily driven by:
- Market size and GDP growth
- Psychic distance and incremental learning (Correct answer)
- Trade agreements and tariff levels
- Competitive rivalry in the home market
Correct answer: Psychic distance and incremental learning
The Uppsala model posits that firms begin internationalization in countries with low psychic distance (similar language, culture, systems) and progressively enter more distant markets as experiential knowledge accumulates.
Question 5: Which theoretical framework explains a firm's decision to internalize foreign activities rather than license them by focusing on transaction cost minimization?
- Eclectic paradigm (OLI framework) (Correct answer)
- Resource-based view
- Institutional theory
- Agency theory
Correct answer: Eclectic paradigm (OLI framework)
Dunning's OLI (Ownership, Location, Internalization) eclectic paradigm specifically includes the internalization advantage, explaining why firms prefer FDI over licensing to avoid transaction costs.
Question 6: When a multinational corporation transfers knowledge from its home country subsidiary to foreign subsidiaries, this is referred to as:
- Reverse innovation
- Knowledge arbitrage
- Lateral knowledge transfer
- Headquarters-to-subsidiary knowledge flow (Correct answer)
Correct answer: Headquarters-to-subsidiary knowledge flow
The traditional flow of knowledge in MNCs runs from the headquarters (home country) outward to subsidiaries, known as headquarters-to-subsidiary knowledge transfer.
Question 7: Political risk in international business is BEST managed through which combination of strategies?
- Currency hedging and interest rate swaps
- Diversification across countries and political risk insurance (Correct answer)
- Lobbying home government and raising import tariffs
- Vertical integration and backward integration
Correct answer: Diversification across countries and political risk insurance
Spreading investments across multiple countries reduces exposure to any single political environment, and political risk insurance (e.g., from MIGA) directly compensates for losses due to political events.
DBA Global Business Strategy and International Management 1
Which entry mode gives a firm the highest degree of control over its international operations but also carries the highest financial risk?