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Transformational outsourcing suggests that just as the firm achieves gains in efficiency, productivity, quality, and revenues by leveraging offshore talent, it also obtains the means to turn around failing businesses, speed up innovation, restructure operations, and fund otherwise-unaffordable development projects.

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How do firms decide whether or not to outsource? In a short essay, describe the factors that contribute to the decision to internalize or externalize business activities.

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Managers must decide between internaliza...

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Contract manufacturing can best be defined as ________.


A) the outsourcing to independent suppliers of business service functions such as accounting, payroll, human resource functions, travel services, IT services, customer service, or technical support
B) the relocation of a business process or entire manufacturing facility to a foreign country
C) sourcing from the firm's own production facilities
D) an arrangement in which the focal firm contracts with an independent supplier to manufacture products according to well-defined specifications

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Not all business activities and processes lend themselves to global sourcing.

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Which of the following is an advantage of exporting?


A) It allows focal firms to attain maximum control by establishing ownership of key assets in the foreign market.
B) It is a high-control strategy that requires substantial resource commitment when compared to equity joint ventures.
C) It minimizes exposure to tariffs and other trade barriers, as well as fluctuations in exchange rates.
D) It increases overall sales volume, improves market share, and reduces per-unit costs of manufacturing and can potentially generate profit margins that are often more favorable than in the domestic market.

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Given the complexities of international business, manufacturing is generally the only value-chain activity that firms outsource abroad.

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Audio Component Outsourcing (Scenario) Echo Corp., a company based in Boston, manufactures high-quality audio components, such as speakers, amplifiers, and receivers for home entertainment systems. Echo has been losing market share in recent years due to the competitive pricing of other audio component manufacturers that engage in global sourcing. Echo managers are attempting to convince Nathan Douglas, the firm's founder and CEO, that global sourcing would enable the firm to be more competitive without sacrificing quality. -Which of the following is a benefit of global sourcing?


A) bridging of the rich-poor divide
B) minimal reliance on suppliers
C) access to qualified personnel abroad
D) elimination of competitors

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Audio Component Outsourcing (Scenario) Echo Corp., a company based in Boston, manufactures high-quality audio components, such as speakers, amplifiers, and receivers for home entertainment systems. Echo has been losing market share in recent years due to the competitive pricing of other audio component manufacturers that engage in global sourcing. Echo managers are attempting to convince Nathan Douglas, the firm's founder and CEO, that global sourcing would enable the firm to be more competitive without sacrificing quality. -Which of the following would be most important to determine in deciding whether to outsource some of Echo's value-chain activities?


A) What are the long-term strategic goals and objectives of Echo?
B) Do engineers working in Echo have the ability to speak one or more European languages?
C) Are Echo employees generally afforded a high degree of workplace freedom?
D) Does Echo intend to increase its annual budget for innovation?

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Describe the four-step process many managers use to achieve successful exporting.

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a. Assess Global Market Opportunity-As a...

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Organic Towel Exports (Scenario) The Organic Towel Company (OTC) employs 400 workers at its facility in Liverpool, England, where the firm has been manufacturing 100% organic cotton towels for five years. OTC sells towels in the United Kingdom primarily to boutique hotels and specialty retail stores, as well as to individual consumers through the company's website. Recently, OTC managers attended a trade show in London where they made contact with numerous foreign market managers. OTC received a request from Earth Waves, an organic clothing store in Toronto, Canada, for a large order of towels. OTC had not been looking into expanding, but firm managers are seriously considering the opportunity to reach a global niche market with their towels. -Which of the following should be considered first in making the decision to export OTC towels to Canada?


A) What is the probability of OTC and Earth Waves entering into a joint venture?
B) How much fluctuation occurs in the exchange rate between the Canadian dollar and the British pound?
C) What is the likelihood of Earth Waves opening a subsidiary in Canada?
D) What documentation would be required for OTC to export towels to Asia?

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After managers have chosen an appropriate market for exporting, the next step is to ________.


A) decide about the resources to be committed
B) acquire the skills and competencies to handle export operations
C) engage appropriate international trade attorneys
D) modify advertising and promotional activities to suit individual markets

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Focal firms that internationalize through exporting will most likely perform ________ in the home market.


A) sales
B) distribution
C) marketing
D) manufacturing

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The use of global sourcing has declined during the current phase of globalization.

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Which of the following is most likely a disadvantage to firms who use exporting as an entry strategy?


A) high cost of foreign market entry
B) difficulties withdrawing from foreign markets
C) The firm must acquire and dedicate capabilities to conduct complex transactions, which can strain organizational resources.
D) high risk due to uncertainty in the political environment of the foreign market

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Which of the following is TRUE with regard to strategies for minimizing the risks of global sourcing?


A) To ensure the success of sourcing ventures, the focal firm must exercise great care to identify and screen potential suppliers and then monitor the activities of those suppliers from which it sources.
B) To maximize returns and minimize risks, management should outsource core business operations.
C) Because production quality in an emerging market rarely varies over time, managers at the focal firm are not obliged to closely monitor manufacturing processes.
D) Firms must refrain from maintaining their own sourcing operations abroad in order to trim costs and minimize risks stemming from frequent currency fluctuations.

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The procurement of selected value-adding activities, including production of intermediate goods or finished products, from independent suppliers is known as ________.


A) outsourcing
B) franchising
C) offshoring
D) licensing

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The pattern or geographic arrangement of locations where the firm carries out value-chain activities is known as ________.


A) configuration of value-adding activity
B) internalization
C) visual merchandising
D) disintermediation

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Which of the following statements is TRUE with regard to the R&D activities of a firm?


A) As a strategic asset, R&D activities are of moderate importance to the firm.
B) R&D activities are usually concentrated at home.
C) R&D activities have a low likelihood of being internalized.
D) R&D activities have a high likelihood of being outsourced.

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A global supply chain is the firm's integrated network of sourcing, production, and distribution, organized on a worldwide scale and located in countries where competitive advantage can be maximized.

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Front office activities cannot be classified under BPO (Business Process Outsourcing).

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