Technical Test Answers Set #4
1. Within the context of global strategy, while some firms have succeeded, some firms have failed.
Please define and describe in details three factors that have likely been overlooked and would have
contributed to the failures. Please provide an example covered in the article or discussed in class.
Factors that firms often overlook (from “Assessing Global Potential”)
- Abandon incremental thinking:
o globalization creates opportunities for step changes in performance – leading firms will
replace traditional, incremental performance goals with much higher targets; adopt
bold targets sooner than later
- Use global assets effectively and efficiently:
o Right mix of capital and labor will be different in developing vs. developed countries
o Get the best mix by doing 3 things:
Increase labor resources to better use expensive capital
Improve shift utilization
Develop cheaper capital equipment when appropriate
o (doing just one of the 3 things isn’t enough)
- Tailor best practices to local conditions:
o Leverage the best practices you learn globally to fit conditions in the host country
o Wal-mart example (uses low-price appeal in Mexico as well as in US, but has tailored the
- Aim for higher quality: By moving production to low-wage countries, firms can upgrade
workers’ skills and still save money (ex. interview more job candidates and conduct more
extensive training, can increase ratio of supervisors to line workers)
Example of ‘Aim for Higher Quality’: Philippines call-center provider eTelecare puts applicants through
a seven-step screening process; by contrast, U.S. call centers review resumes and conduct just a single
interview. ETelecare extends offers to just 2% of its applicants, but it enjoys a 90% acceptance rate and
very low turnover. With low labor costs, offshore operations can also increase the ratio of supervisors to
line workers, thereby improving quality while still saving money. 2. According to the article “Assessing your Company’s global potential” by Farrell, the author
identifies various factors that make some industries more global than others. Please define and
describe three (3) factors in details. How does is each one of these affecting or has affected trade?
Please provide an relevant example covered in class or in the article
Production – 2 factors that determine the potential for disaggregating the value chain:
1) Relocation sensitivity (how feasible it is to relocate parts of your production processes)
2) Location-specific advantages (variables like labor intensity, natural resources intensity, skill
requirements for industry)
1) Tariffs, quotas, requirements to enter joint ventures with local firms, specify minimum content from
2) Can also increase globalization by reducing tariffs, subsidies for certain types of industries
1) Internal management systems internal culture impacts management processes and decision-
making…if these aren’t aligned with the foreign country’s values, it will pose a problem
2) Incentive systems reward system may motivate/de-motivate employees based on how it fits with
the foreign expansion…incentives must align with global performance metrics
Unionization raises barriers to entry
Organizational factors - Off shoring in many U.S. companies has been slowed by midlevel managers'
reluctance to give up some responsibility for the migrated positions. 3. According to the article “Assessing your Company’s global potential” by Farrell, the author raises
the point that globalization is not just about generating cost savings but also about “New market
creation”. Please define and describe the steps suggested by the author on how to get to the market
creation step. What is/are the relationship(s) between the first four steps and the last one? Could a
firm jump directly from step one to step five. Yes or No and Why?
Stage One: Market Entry. Companies enter new countries using production models that are very similar
to the ones they deploy in their home markets in order to gain access to local customers.
Stage Two: Product Specialization. Companies transfer the full production process of a particular
product to a single low-cost location and export the goods to various consumer markets, specializing in
Stage Three: Value Chain Disaggregation. Companies start to disaggregate the production process and
focus each activity in the most advantageous location.
Stage Four: Value Chain Reengineering. Companies don't just replicate their production processes
abroad; they increase their cost savings by reengineering their processes to suit local market.
The final stage: Creation of new markets represents the expansion of the market.
Stages three and four together have the potential to reduce costs by more than 50% in many
industries, which gives companies the opportunity to substantially lower their sticker prices in both old
and new markets and to expand demand. Industries and companies tend to globalize in phases; at each
stage, there are different opportunities for creating value. In the first three stages, value comes from
basic improvements to typical business practices. In the last two stages, it comes from true process
innovations and market expansion. 4. According to the article “Why you should not go global” by Alexander and Korine, the authors
claim that the “management fad” and “Siren Song” concepts help understand some firm’s decision to
pursue an international strategy. Please define and describe the “Management Fad” and the “Siren
Song” concepts including two (2) characteristics for each ones. Why does the author state that these
concepts help understand ill-advised firms’ decision to pursue an international strategy? Please
provide an example discussed in class or covered in the article?
Elements of the “Management Fad”:
- The management trends that grow out of the assumption that companies must become more
- A new management approach is pioneered at company X, and the firm does well, leading to
mindless replication of the approach without consideration of how to apply it to their firm
- Even as smart managers look for new ideas for competitive advantage, stubborn managers carry
on with the management fad in the face of mounting costs because they believe in the trend
Elements of the “Siren Song” concept:
- Companies neglect to