Globalisation, International Trade and Business Strategy: Fixed Study Answers

Posted on Nov 2, 2026 in Business Administration and Management (BAM)

Chapter 1: Globalisation

1. Describe the shifts in the world economy over the past 30 years. What are the implications of these shifts for international businesses based in the United Kingdom? North America? Hong Kong?

Over the past 30 years, the world economy has become increasingly globalised and interconnected. The United States and other developed economies have lost some of their relative dominance, while China and other Asian economies have experienced significant growth. International trade and foreign direct investment have increased, new competitors have emerged, and former communist economies have opened to international business.

For businesses based in the United Kingdom and North America, these changes create opportunities to access new markets and reduce costs through international production. However, they also face stronger competition from foreign companies. For Hong Kong businesses, China’s economic growth creates opportunities for trade and investment, although companies must adapt to changing competition and international market conditions.

2. “The study of international business is fine if you are going to work in a large multinational enterprise, but it has no relevance for individuals who are going to work in small firms.” Evaluate this statement.

I disagree with this statement because international business is relevant to companies of all sizes. A small firm does not need to own factories abroad to participate in the global economy. It can import materials, export products, sell online to international customers, or cooperate with foreign suppliers. Understanding international business helps small firms identify new markets, reduce costs, and compete more effectively. However, they must also understand exchange rates, cultural differences, international regulations, and foreign competition. Globalisation has made international opportunities more accessible to smaller companies through the Internet and lower transportation costs. Therefore, studying international business is useful for anyone who may work in a company that trades or operates across national borders.

3. How have changes in technology contributed to the globalisation of markets and production? Would the globalisation of production and markets have been possible without these technological changes?

Technological advances have contributed significantly to the globalisation of markets and production. The development of computers, the Internet, and telecommunications has made communication faster and cheaper, allowing companies to coordinate activities across different countries. Improvements in transportation, including commercial aircraft and container shipping, have reduced delivery times and shipping costs. As a result, companies can manufacture components in different countries and sell their products worldwide. Technology has also helped create global markets by spreading information, media, and consumer trends across national borders. Without these changes, globalisation might still have developed because trade barriers have declined, but it would have been much slower, more expensive, and more difficult to manage. Therefore, technology has been essential to globalisation’s expansion.

4. “Ultimately, the study of international business is no different from the study of domestic business. Thus, there is no point in having a separate course on international business.” Evaluate this statement.

I disagree with this statement because international business involves additional challenges that do not normally exist in domestic business. Although both require managers to make decisions about marketing, finance, production, and human resources, international businesses must deal with differences between countries. These include cultural values, political and economic systems, legal regulations, and levels of economic development. Managers must also consider government restrictions on trade and investment, exchange rate fluctuations, and the difficulties of coordinating activities across different countries. For example, a marketing strategy that works in the United Kingdom may not be successful in Japan because consumer preferences differ. Therefore, a separate international business course is necessary to understand these challenges and prepare managers to operate successfully in global markets.

5. How does the Internet affect international business activity and the globalisation of the world economy?

The Internet has significantly increased international business activity by making communication, information sharing, and transactions faster and cheaper. It allows businesses of all sizes to reach customers in foreign markets without necessarily establishing physical operations abroad. Companies can sell products online, communicate with international suppliers, and coordinate production across different countries. For example, a company can receive customer orders online and immediately share them with suppliers worldwide. The Internet also facilitates outsourcing by allowing activities such as customer service, software testing, and administrative work to be performed in other countries. Furthermore, global communication helps spread consumer trends and information, encouraging the development of international markets. Overall, the Internet reduces geographical barriers and makes the global economy more interconnected and accessible.

6. If current trends continue, China may be the world’s largest economy by 2035. Discuss the possible implications of such a development for:

• a. the world trading system.
• b. the world monetary system.
• c. the business strategy of today’s European and U.S.-based global corporations.
• d. global commodity prices.

6a. China’s rise could increase international trade and strengthen its influence over global trade rules, although it might also create tensions with other major economies.

6b. China could promote wider use of the yuan internationally, gradually challenging the US dollar’s dominance. However, the dollar would likely remain important because of confidence in US financial markets.

6c. European and US corporations should invest in China while improving innovation and competitiveness. They should also diversify suppliers and markets to reduce political and economic risks.

6d. China’s growth could increase demand for oil, metals, and agricultural products, pushing commodity prices higher. However, actual price changes would depend on global supply and demand.

7. Reread the Management Focus “Boeing’s Global Production System” and answer the following questions:

• a. What are the benefits to Boeing of outsourcing in other countries?
• b. What are the potential costs and risks to Boeing of outsourcing?
• c. In addition to foreign subcontractors and Boeing, who else benefits from Boeing’s decision to outsource component part manufacturing assembly to other nations? Who are the potential losers?
• d. If Boeing’s management decided to keep all production in America, what do you think the effect would be on the company, its employees, and the communities that depend on it?
• e. On balance, do you think that the kind of outsourcing undertaken by Boeing is a good thing or a bad thing for the American economy? Explain your reasoning.

7a. Outsourcing gives Boeing access to specialised expertise, shares development costs, and may encourage foreign airlines to buy its aircraft.

7b. It creates coordination problems, delays, quality risks, and dependence on suppliers. Boeing’s 787 Dreamliner experienced significant delays during development.

7c. Foreign suppliers and economies may gain jobs and investment, while American workers and domestic suppliers may lose employment and contracts.

7d. Keeping production in America could protect domestic jobs but increase costs, reduce access to foreign expertise, and weaken Boeing’s competitiveness against Airbus.

7e. Overall, outsourcing can benefit the American economy by helping Boeing remain competitive. However, combining international suppliers with domestic investment would help protect jobs and essential technical skills.

Chapter 6: International Trade Theory

1. Mercantilism is a bankrupt theory that has no place in the modern world. Discuss.

I partly agree with this statement because traditional mercantilism has important limitations, although some governments still follow similar policies. Mercantilism assumes that a country becomes wealthier by exporting more than it imports and accumulating financial reserves. However, it treats international trade as a zero-sum game, assuming that one country’s gain must be another country’s loss. Adam Smith and David Ricardo demonstrated that trade can benefit all countries through specialisation and comparative advantage. Free trade allows nations to use their resources more efficiently, increase production, and offer consumers cheaper products. Nevertheless, some governments still try to promote exports and restrict imports to protect domestic industries. Therefore, mercantilism is outdated as a general economic theory, but its influence remains visible today.

2. Is free trade fair? Discuss.

In my opinion, free trade can be beneficial, but it is not always fair to everyone. Free trade allows countries to specialise in producing goods and services they can make efficiently, increasing productivity and lowering prices for consumers. It also gives businesses access to larger markets and encourages competition and innovation. However, the benefits are not distributed equally. Some domestic industries may struggle to compete with cheaper foreign imports, causing businesses to close and workers to lose their jobs. Developing countries may also face difficulties competing with established economies that have better technology, infrastructure, and access to capital. Therefore, although free trade can improve overall economic welfare, governments should support workers and communities affected by international competition rather than assuming everyone benefits equally.

3. Unions in developed nations often oppose imports from low-wage countries and advocate trade barriers to protect jobs from what they often characterise as “unfair” import competition. Is such competition “unfair”? Do you think that this argument is in the best interests of (a) the unions, (b) the people they represent, and/or (c) the country as a whole?

Competition from low-wage countries is not necessarily unfair because differences in labour costs can reflect comparative advantage. However, unions may consider it unfair when imports threaten domestic jobs and wages.

• (a) Trade barriers can protect unions’ bargaining power in the short term, but they may reduce pressure on domestic industries to improve efficiency.
• (b) Workers in protected industries may benefit temporarily, while other workers and consumers lose through higher prices. Companies using imported materials may also face higher costs.
• (c) For the country as a whole, protectionism can reduce efficiency, encourage retaliation, and harm export industries.

In my opinion, governments should generally support free trade while helping affected workers retrain and find new employment instead of relying mainly on import restrictions.

4. What are the potential costs of adopting a free trade regime? Do you think governments should do anything to reduce these costs? Why?

Free trade can create significant adjustment costs, even when it benefits the economy overall. Domestic businesses that cannot compete with cheaper or more efficient foreign producers may close, causing unemployment and lower incomes in affected communities. Workers may struggle to find new jobs because their skills are specific to declining industries or because suitable employment is located elsewhere. These effects can be particularly serious in regions heavily dependent on manufacturing. In my opinion, governments should help reduce these costs without abandoning free trade. They can provide retraining programmes, education, temporary income support, and assistance with finding new employment. Governments should also invest in infrastructure and encourage innovation. These measures help workers adapt to economic changes while allowing consumers and businesses to benefit from international trade.

5. Reread the Country Focus “Is China Manipulating Its Currency in Pursuit of a Neo-Mercantilist Policy?”

• a. Do you think China is pursuing a currency policy that can be characterised as neo-mercantilist?
• b. What should the United States, and other countries, do about this?

(a) China has sometimes been accused of pursuing a neo-mercantilist policy by keeping the yuan artificially cheap to encourage exports and accumulate foreign exchange reserves. However, the evidence is not conclusive. China allowed the yuan to appreciate against the US dollar from 2005, increasing the price of Chinese exports. Later, when capital began leaving China, the government spent substantial reserves supporting the currency rather than deliberately weakening it.

(b) The United States and other countries should encourage China to maintain a more transparent and flexible exchange rate. They should address concerns through negotiations and international institutions rather than immediately imposing trade barriers. This approach would reduce tensions while supporting fairer competition and a more stable international trading system.

6. Reread the Country Focus “Moving U.S. White-Collar Jobs Offshore.”

• a. Who benefits from the outsourcing of skilled white-collar jobs to developing nations? Who are the losers?
• b. Will developed nations like the United States suffer from the loss of high-skilled and high-paying jobs?

(a) Outsourcing skilled white-collar jobs benefits companies through lower labour costs and allows consumers to benefit from potentially cheaper products and services. Workers in developing countries, such as India, gain employment and opportunities to develop valuable skills. However, American employees who lose their jobs, their families, and communities dependent on those jobs may suffer.

(b) Developed countries could experience significant short-term costs when high-skilled, high-paying jobs move abroad. This may reduce employment opportunities and weaken certain industries. However, outsourcing can also allow companies to become more competitive and redirect resources toward activities where they have an advantage, such as research and development. Therefore, developed countries may suffer in particular sectors, but the overall effect depends on how effectively workers and businesses adapt to economic change.

7. Is there a difference between the transference of high-paying white-collar jobs, such as computer programming and accounting, to developing nations, and low-paying blue-collar jobs? If so, what is the difference, and should government do anything to stop the flow of white-collar jobs out of the country to countries such as India?

Yes, there is a difference, although both types of outsourcing can cause domestic job losses. Blue-collar outsourcing traditionally affects manufacturing workers, while white-collar outsourcing involves skilled jobs such as programming, accounting, and technical services. The movement of white-collar jobs is particularly concerning because these positions were often expected to remain in developed countries due to their high skill requirements and wages. Outsourcing them can affect highly educated workers and reduce incentives to invest in certain skills. However, preventing outsourcing completely could increase business costs and reduce international competitiveness. In my opinion, governments should not ban the transfer of these jobs. Instead, they should invest in education, retraining, innovation, and policies that help workers move into higher-value activities.

8. Drawing upon the new trade theory and Porter’s theory of national competitive advantage, outline the case for government policies that would build national competitive advantage in biotechnology. What kinds of policies would you recommend that the government adopt? Are these policies at variance with the basic free trade philosophy?

Governments can help develop a competitive biotechnology industry by supporting innovation and enabling domestic firms to gain advantages in international markets. New trade theory suggests that early movers in industries with significant economies of scale can establish advantages that are difficult for competitors to challenge. Porter’s theory emphasises skilled workers, strong domestic demand, related industries, and competition between firms.

Therefore, governments should fund basic scientific research, improve university education, support collaboration between universities and biotechnology companies, and invest in advanced infrastructure. Temporary support for promising research and development projects could also help firms commercialise new discoveries. These policies involve some intervention and may differ from a strict free-trade philosophy, but carefully designed support can strengthen long-term competitiveness without relying on permanent protectionism.

9. The world’s poorest countries are at a competitive disadvantage in every sector of their economies. They have little to export; they have no capital; their land is of poor quality; they often have too many people given available work opportunities; and they are poorly educated. Free trade cannot possibly be in the interests of such nations. Discuss.

I disagree with this statement because free trade can create opportunities for poor countries, although its benefits are not automatic. Through international trade, countries can specialise in products they can produce relatively efficiently, attract investment, access new markets, and acquire technology and knowledge from abroad. Trade can also create employment and encourage economic growth. However, the poorest countries often face serious disadvantages, including limited capital, poor infrastructure, low levels of education, and weak institutions. These problems make it difficult for them to compete internationally and benefit fully from open markets. In my opinion, free trade should be combined with government investment in education, transport, infrastructure, and skills. International support and improved market access can also help poorer countries develop competitive industries and reduce poverty over time.

Chapter 8: Foreign Direct Investment

1. In 2008, inward FDI accounted for some 63.7 percent of gross fixed capital formation in Ireland, but only 4.1 percent in Japan. (Gross fixed capital formation refers to investments in fixed assets such as factories, warehouses, and retail stores.) What do you think explains this difference in FDI inflows into the two countries?

The difference between Ireland and Japan can be explained by their attractiveness to foreign investors and their attitudes toward foreign direct investment (FDI). Ireland has attracted multinational companies through its favourable business environment, relatively low corporate taxes, access to the European market, and skilled English-speaking workforce. Foreign companies have therefore invested in Irish facilities and used the country as a base for international operations. Japan, in contrast, has traditionally had a more difficult environment for foreign firms to enter, including strong domestic competitors, established business relationships, and cultural and regulatory barriers. Japan also has many large domestic companies capable of financing their own investments. Therefore, Ireland’s greater dependence on foreign investment and Japan’s stronger domestic business base help explain the difference in FDI inflows.

2. Compare and contrast these explanations of FDI: internalisation theory and Knickerbocker’s theory of FDI. Which theory do you think offers the best explanation of the historical pattern of FDI? Why?

Internalisation theory explains why companies choose foreign direct investment instead of exporting or licensing. Firms may invest abroad to protect valuable knowledge, maintain control over operations, and avoid the risks of transferring technology to independent partners. Knickerbocker’s theory, in contrast, explains why companies in oligopolistic industries often invest abroad after their competitors do. A firm may follow a rival into a foreign market to protect its competitive position and avoid losing customers. In my opinion, neither theory fully explains every historical pattern of FDI. However, Knickerbocker’s theory is particularly useful for explaining waves of investment among competing companies, while internalisation theory explains why firms prefer ownership over licensing. Together, they provide a stronger explanation than either theory alone.

3. What are the strengths of the eclectic theory of FDI? Can you see any shortcomings? How does the eclectic theory influence management practice?

The eclectic theory, developed by John Dunning, combines different explanations of foreign direct investment through three advantages: ownership, location, and internalisation (OLI). Ownership advantages include valuable technology, brands, and management skills. Location advantages explain why a country may be attractive because of its market size, labour costs, or resources. Internalisation advantages arise when a company benefits from controlling foreign operations rather than licensing another firm. The theory’s main strength is that it provides a comprehensive framework for understanding why, where, and how companies invest abroad. However, it can be difficult to measure these advantages, and it does not always predict decisions precisely. In management practice, it helps firms compare countries and entry strategies before committing resources to international expansion.

4. Read the Management Focus titled “Burberry Shifts Its Entry Strategy in Japan” and then answer the following questions:

• a. Why did Burberry initially choose a licensing strategy to expand its presence in Japan?
• b. What limitations of licensing became apparent over time? Should Burberry have expected these drawbacks to arise?
• c. Was terminating the Japanese licensing agreement and opening wholly owned stores the correct strategy for Burberry? What are the risks here?

(a) Burberry initially chose licensing because a Japanese partner could manage local operations, understand the market, and expand distribution without requiring Burberry to invest heavily.

(b) Over time, licensing weakened Burberry’s luxury image because the partner sold many products at lower prices and had considerable freedom over the brand. These risks should have been anticipated because licensing reduces control.

(c) Ending the agreement and opening wholly owned stores was reasonable because it restored control over pricing, products, and brand image. However, Burberry faced higher costs, greater responsibility, and the risk of lower sales while rebuilding its position. Overall, I believe the strategy was appropriate for protecting its long-term luxury identity.

5. You are the international manager of a U.S. business that has just developed a revolutionary new personal computer that can perform the same functions as existing PCs but costs only half as much to manufacture. Several patents protect the unique design of this computer. Your CEO has asked you to formulate a recommendation for how to expand into Western Europe. Your options are (a) to export from the United States, (b) to license a European firm to manufacture and market the computer in Europe, or (c) to set up a wholly owned subsidiary in Europe. Evaluate the pros and cons of each alternative and suggest a course of action to your CEO.

I would recommend establishing a wholly owned subsidiary in Europe, although exporting could be a useful first step. Exporting requires less initial investment and allows the company to test demand, but transportation costs, trade barriers, and distance from customers could limit its effectiveness. Licensing a European manufacturer would reduce costs and provide local market knowledge, but it could expose valuable technology to a partner, even with patents protecting the design. A wholly owned subsidiary requires substantial investment and creates greater financial risk, but it provides full control over production, marketing, and intellectual property. Since the computer has a major cost advantage and patented technology, protecting its competitive advantage is essential. Therefore, I would favour a wholly owned subsidiary if expected European sales justify the investment.

Chapter 13: Strategy

1. In a world of zero transportation costs, no trade barriers, and significant differences between nations with regard to factor conditions, firms must expand internationally if they are to survive. Discuss.

I believe that international expansion is essential for many firms to survive and remain competitive, although it is not equally necessary for every company. When transportation costs and trade barriers are zero, firms can easily sell their products abroad and access new markets. Moreover, significant differences in factor conditions, such as labour costs, natural resources, and skilled workers, allow companies to locate their activities where they can operate more efficiently. International expansion also helps firms increase sales, achieve economies of scale, benefit from learning effects, and transfer their core competencies to foreign markets. However, expanding internationally also involves risks and requires investment. Therefore, firms should evaluate their resources and competitive environment before deciding how and where to expand.

2. Plot the position of the following firms on Figure 13.6: Procter & Gamble, IBM, Apple, Coca-Cola, Dow Chemical, Intel, and McDonald’s. In each case justify your answer.

I would position the companies according to their pressures for cost reduction and local responsiveness. Procter & Gamble follows a transnational strategy because it seeks efficiency while adapting products to local preferences. IBM combines global integration with responsiveness to different business customers, placing it closer to a transnational strategy. Apple is closer to global standardisation because it sells relatively standardised products worldwide and benefits from economies of scale. Coca-Cola combines global branding with local adaptations in marketing and products, making it transnational. Dow Chemical prioritises cost efficiency in highly competitive chemical markets. Intel emphasises standardised products, global production efficiency, and economies of scale. Finally, McDonald’s combines global standardisation with menu adaptations, placing it between global standardisation and transnational strategies.

3. In what kind of industries does a localisation strategy make sense? When does a global standardisation strategy make the most sense?

A localisation strategy makes sense in industries where consumer preferences, cultural differences, and national conditions vary significantly between countries. Companies must adapt their products, marketing, and business strategies to meet local needs. Examples include food and restaurants, where tastes and eating habits differ across markets. In contrast, a global standardisation strategy is most appropriate when pressures to reduce costs are strong and the need for local responsiveness is relatively low. It allows firms to sell standardised products worldwide, concentrate activities in efficient locations, and benefit from economies of scale and learning effects. This strategy is particularly suitable for many industrial goods industries, such as semiconductors, where customers across countries often require similar products and global standards support standardisation.

4. Reread the Management Focus “AB InBev, Beer Globally, and Creating Value,” and then answer the following questions:

• a. With more than 200 brands and strong coverage internationally of the different brands, strategically AB InBev is a unique and highly organised global company. Do they have too many brands? Why or why not?
• b. The company follows a focused brands strategy in which the majority of the resources are devoted to those brands that have the greatest long-term growth potential. What positives and negatives do you see with this approach?
• c. Strategically, AB InBev has 10 principles driving everything they do. At the core, AB InBev is focused on a shared dream that energises everyone to work in the same direction to be the best beer company in the world, bring people together, and create a better world. Additional principles cover people strengths, quality of teams, striving for increased satisfaction, consumer focus, ownership, common sense and simplicity, cost management, leadership, and hard work and responsibility. Should large multinational corporations really be built on strong principles, or do they need a more flexible structure?

(a) I do not necessarily think AB InBev has too many brands because global, international, and local brands allow it to reach different consumer segments and meet local preferences. However, maintaining more than 200 brands can increase complexity and costs.

(b) A focused brand strategy concentrates investment on brands with the greatest growth potential, improving efficiency and profitability. However, smaller brands may receive insufficient support and lose market share.

(c) I believe strong principles are essential for multinational corporations because they create shared goals, encourage teamwork, and guide decisions across countries. Nevertheless, companies also need flexibility to adapt to different markets and changing conditions. Therefore, AB InBev should combine clear common values with enough autonomy for local managers to respond to consumer needs.

5. What do you see as the main organisational problems that are likely to be associated with the implementation of a transnational strategy?

The main organisational problem associated with a transnational strategy is the difficulty of coordinating activities across countries while balancing global efficiency and local responsiveness. Different departments and subsidiaries may have conflicting objectives: production managers prioritise cost reduction, while marketing managers focus on adapting products to local preferences. This can create communication problems, disagreements, and power struggles. A matrix structure can help coordinate these activities, but it may also become bureaucratic, slow decision-making, and make responsibilities unclear. Furthermore, the high interdependence between subsidiaries makes it difficult to evaluate individual performance because poor results may be caused by another unit. As a result, management must invest more time and resources in coordination, control, and building a shared organisational culture.

Chapter 14: Organisation

1. “The choice of strategy for a multinational firm must depend on a comparison of the benefits of that strategy (in terms of value creation) with the costs of implementing it (as defined by organisational architecture necessary for implementation). On this basis, it may be logical for some firms to pursue a localisation strategy, others a global or international strategy, and still others a transnational strategy.” Is this statement correct?

I believe this statement is correct because the best international strategy depends on whether its benefits outweigh the costs of implementing it. A localisation strategy is appropriate when adapting products to local preferences is essential, and its relatively decentralised structure keeps coordination costs low. An international strategy works when a company can transfer valuable products or competencies from its home country to foreign markets without extensive integration. A global standardisation strategy is suitable when cost reduction, economies of scale, and efficient global operations are priorities. Finally, a transnational strategy can combine cost efficiency, local responsiveness, and global learning, but it requires complex coordination and higher control costs. Therefore, firms should choose the strategy that best fits their competitive environment and organisational capabilities.

2. Discuss this statement: “An understanding of the causes and consequences of performance ambiguity is central to the issue of organisational design in multinational firms.”

Performance ambiguity occurs when it is difficult to identify the causes of a subsidiary’s poor performance, particularly when its results depend on other units. For example, a subsidiary with low sales may blame poor-quality products supplied by another country, while the supplying unit may argue that the sales team is ineffective. This uncertainty makes it difficult for headquarters to evaluate managers fairly and increases the time and cost required for control. Organisational design is therefore essential because it determines how responsibilities, decisions, and activities are distributed. Strategies involving greater interdependence, especially transnational strategies, create more performance ambiguity. Firms can reduce these problems through clear responsibilities, effective communication, shared organisational values, and incentive systems that reward both individual performance and cooperation across the multinational organisation.

3. Describe the organisational architecture that a transnational firm might adopt to reduce the costs of control.

A transnational firm should adopt a flexible matrix structure supported by strong communication networks and a shared organisational culture. The matrix gives both product divisions and geographical areas influence over decisions, allowing the company to coordinate global efficiency with local responsiveness. Some decisions, particularly those involving production and research and development, should remain relatively centralised to achieve economies of scale. Other decisions, especially marketing, should be decentralised so local subsidiaries can respond to consumer preferences. To reduce control costs, the company should establish clear responsibilities, encourage cooperation between units, and use integrated information systems to share knowledge and best practices. Incentives should reward both subsidiary performance and overall corporate results. A strong common culture can also reduce conflict and encourage managers to prioritise the interests of the entire company.

4. What is the most appropriate organisational architecture for a firm that is competing in an industry where a global strategy is most appropriate?

The most appropriate organisational architecture for a firm pursuing a global standardisation strategy is generally a worldwide product division structure, with strong centralisation of decision-making at headquarters. This structure allows the company to coordinate its globally dispersed value-creation activities and achieve economies of scale, learning effects, and location economies. Headquarters should maintain control over important operating decisions to ensure consistency and efficiency across countries. The company should also use formal and informal integrating mechanisms to coordinate subsidiaries and share information. Since different units depend on one another, performance ambiguity can become a problem. Therefore, the firm needs clear performance controls, a strong organisational culture, and incentives linked partly to overall corporate performance. These mechanisms encourage cooperation and help subsidiaries prioritise global objectives rather than only their individual results.

5. If a firm is changing its strategy from an international to a transnational strategy, what are the most important challenges it is likely to face in implementing this change? How can the firm overcome these challenges?

The main challenge is moving from transferring core competencies from the home country to a system that also requires local responsiveness, global efficiency, and knowledge sharing between all subsidiaries. This change increases organisational complexity and requires closer coordination between headquarters, product divisions, and country operations. Managers may resist because they could lose authority, while established organisational cultures and routines can make change difficult. A matrix structure may also create conflicts, bureaucracy, and unclear responsibilities. To overcome these challenges, the company should communicate the reasons for change, involve managers in implementation, and clarify decision-making responsibilities. It should also develop integrated information systems, management networks, and a shared organisational culture. Finally, incentives should reward cooperation and overall corporate performance, encouraging subsidiaries to share knowledge instead of prioritising only their own objectives.

6. Reread the Management Focus on Dow Chemical; then answer the following questions:

• a. Why did Dow first adopt a matrix structure? What were the problems with this structure? Do you think these problems are typical of matrix structures?
• b. What drove the shift away from the matrix structure for companies such as Dow and ABB? Does Dow’s structure now make sense given the nature of its businesses and the competitive environment it competes in?

(a) Dow initially adopted a matrix structure to coordinate its different businesses, functions, and geographical areas while accommodating their different needs. However, the structure created bureaucracy, slow decision-making, conflicts between managers, and unclear accountability. These problems are typical of matrix structures because employees may report to multiple managers with competing priorities.

(b) Intense global competition and the need to reduce costs drove companies such as Dow and ABB away from complex matrix structures. Dow eventually focused more heavily on chemicals, where low-cost production was essential, and adopted global business divisions. I believe this structure makes sense because it simplifies management, reduces administrative costs, and clarifies responsibility. However, a matrix can still be appropriate when businesses need substantial coordination and local responsiveness. The key is matching the structure to the company’s strategy and competitive environment.

7. Reread the Management Focus on Lincoln Electric; then answer the following questions:

• a. To what extent is the organisational culture of Lincoln Electric aligned with the firm’s strategy?
• b. How was the culture at Lincoln Electric created and nurtured over time?
• c. Why did Lincoln Electric’s culture and incentive systems work well in the United States? Why did it not work in other nations?

(a) Lincoln Electric’s culture strongly supports its cost-focused strategy because piecework and performance bonuses encourage productivity, quality, and innovation. This helps the company maintain low costs despite paying competitive wages.

(b) James Lincoln created this culture by emphasising individual merit, equality, open communication, and sharing productivity gains with employees, customers, and shareholders. The company reinforced these values through performance-based pay and merit bonuses.

(c) The system worked well in the United States because it matched the country’s individualistic culture and rewarded personal effort. However, it was difficult to transfer abroad because attitudes toward piecework differed, labour unions opposed it, and legal restrictions existed. For example, piecework was illegal in Germany. Lincoln also struggled to change the established cultures of acquired companies. To improve, it needed to communicate its values more effectively and adapt its practices to local conditions.