In which situation is the contender strategy appropriate for responding to multinational enterprises (MNEs)?
Correct Answer: B
Explanation:
In Global Economics for Managers, the contender strategy is appropriate when industry pressure to globalize is high, but competitive assets are customized to home markets, making option B correct. This strategy is typically adopted by domestic firms facing strong competition from multinational enterprises (MNEs) in industries that are becoming increasingly global. High pressure to globalize means that firms must compete on an international scale, often due to global customers, standardized products, or strong foreign competitors. However, when a firm’s competitive assets—such as brand reputation, customer relationships, distribution networks, or regulatory knowledge—are deeply rooted in the home market, they are not easily transferable abroad. In this situation, the firm cannot immediately expand internationally without losing its competitive advantage. Under a contender strategy, firms focus on defending and strengthening their domestic position while gradually upgrading capabilities to prepare for future global competition. This may involve improving efficiency, investing in technology, forming selective alliances, or learning from foreign competitors operating in the home market. Option A describes conditions suitable for an extender strategy, where firms can leverage transferable assets internationally. Options C and D reflect low pressure to globalize and are more consistent with defender or dodger strategies rather than contender behavior. Therefore, option B best captures the conditions under which the contender strategy is applied in response to MNE competition.
Question 2
What are costs to home countries of foreign direct investment (FDI)? (Choose TWO.)
Correct Answer: A, D
Explanation:
According to Global Economics for Managers, foreign direct investment (FDI) can generate substantial benefits for both home and host countries, but it may also impose certain costs on the home country, particularly in the short to medium term. Two commonly identified costs are job loss and capital outflow, making options A and D correct. Job loss may occur when firms shift production facilities, service operations, or manufacturing plants from the home country to foreign locations. This relocation is often driven by lower labor costs, proximity to emerging markets, or favorable regulatory environments abroad. While such decisions may increase firm profitability and global competitiveness, they can lead to unemployment or downward wage pressure in specific domestic industries. Global Economics for Managers emphasizes that these adjustment costs are often concentrated in particular regions or sectors, even if the national economy benefits in the long run. Capital outflow refers to the movement of financial resources from the home country to finance investment abroad. When domestic firms invest overseas, funds that could have been used for domestic investment are instead allocated to foreign operations. In the short run, this may reduce domestic capital formation and slow economic growth, particularly if domestic investment opportunities remain underfunded. The remaining options are less consistent with standard managerial economics analysis. Reduced standard of living is not a direct or inevitable consequence of FDI and often depends on broader macroeconomic conditions. Cultural disintegration is a sociological concern rather than an economic cost emphasized in managerial economics. Loss of sovereignty is typically associated with host countries rather than home countries. Loss of intellectual property may occur in certain cases but is not a primary or systematic cost identified for home countries in FDI theory. Thus, job loss and capital outflow best represent the principal costs to home countries highlighted in Global Economics for Managers.
Question 3
What does the term resource mobility describe?
Correct Answer: B
Explanation:
industries, capital may be industry-specific, and geographic or institutional barriers can slow adjustment. These limitations explain why trade liberalization can create short-run adjustment costs even when long-run gains are positive. For managers, understanding resource mobility is critical when making strategic decisions about investment, workforce planning, and location. Firms operating in dynamic global markets benefit when resources can be redeployed quickly in response to price signals and competitive pressures. Therefore, option B precisely captures the meaning and importance of resource mobility within microeconomic and macroeconomic principles.
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