IIA IIA Certifications IIA-CIA-PART3 Questions & Answers

• Question 901:

  Developing brand equity in a foreign market may be desirable but is subject to considerable risk. A global firm launching a new product in a new market most likely should

  A. Initially place most of the firm's emphasis on advertising geared to the local culture.

  B. Fully decentralize control of the marketing process.

  C. Avoid creating partnerships with local distribution channels to avoid dilution of the brand.

  D. Balance standardization and customization of the product.

  Correct Answer: D

  The firm should determine the ratio of standardization and customization. Products that can be sold virtually unchanged throughout several markets provide a greater profit opportunity for a global firm. However, cultural differences may require extensive customization to appeal to markets in different countries.

• Question 902:

  According to keegan's model of adaptation strategies, a firm that decides to operate globally by changing its product and its promotion methods has chosen

  A. A dual adaptation strategy.

  B. The backward variant of a product invention strategy.

  C. The forward variant of a product invention strategy.

  D. A straight extension strategy.

  Correct Answer: A

  Communication adaptation is a strategy that does not change the products, but advertising and marketing campaigns are changed to reflect the local culture and beliefs. In contrast, a dual adaptation strategy changes both the product and the promotion to provide the best chance of acceptance in a foreign market.

• Question 903:

  A firm that sells in foreign markets should consider all aspects of how products move from the firm to ultimate users. Where in the whole channel are marketing mix decisions most likely made?

  A. Export department of the seller firm.

  B. Import department of the buyer firm.

  C. Channels within nations.

  D. Channels between nations.

  Correct Answer: A

  Distribution channels are a necessity to ensure that goods are successfully transferred from the production facility to end users. These channels include three distinct links that must work smoothly together.

  1.

  The international marketing headquarters (export department of international division) is where decisions are made with regard to the subsequent channels and other aspects of the marketing mix.

  2.

  Channels between nations carry goods to foreign borders. They include air, land, sea, or rail transportation channels. At this stage, in addition to transportation methods, intermediaries are selected (e.g., agents or trading companies) and financing and risk management decisions are reached.

  3.

  Channels within nations take the goods from the border or entry point to the ultimate users of the products. Among nations, the number of levels of distribution, the types of channels, and the size of retailers vary substantially.

• Question 904:

  A firm sold the same product in many foreign countries but changed the ad copy to allow for language and cultural differences. According to teegan's model of adaptation strategies, the firm adopted a strategy of:

  A. Product adaptation.

  B. Communication adaptation.

  C. Dual adaptation.

  D. Straight extension.

  Correct Answer: B

  Communication adaptation is a strategy that does not change the products, but advertising and marketing campaigns are changed to reflect the local culture and beliefs. For example, a firm may use one message but with changes in language, name, and colors. It may use a consistent theme but change the ad copy in each market. Another option is for a firm to devise a group of ads from which each market may choose the most effective. Still another option is to develop promotion campaigns locally.

• Question 905:

  A firm sells its product in a foreign market for a much higher price than in the firm's home market. The reason is most likely:

  A. Price elasticity of demand.

  B. Dumping.

  C. Gray market activity.

  D. Price escalation.

  Correct Answer: D

  Price escalation is caused by an accumulation of additional costs, e.g., currency fluctuations; transportation expenses; profits earned by importers, wholesalers, and retailers; and import duties.

• Question 906:

  A global firm establishes a cost-based price for the firm's product in each country. The most likely negative outcome is that this pricing strategy will

  A. Set too high a price in countries where the firm's costs are high.

  B. Overprice the product in some markets and underprice the product in others.

  C. Create a gray market.

  D. Result in dumping.

  Correct Answer: A

  A firm may set a cost-based price in each market with a standard markup. In a region or country where costs are high, this strategy may result in prices that are too high to be competitive within the local market.

• Question 907:

  A firm ships its product to a foreign subsidiary and charges a price that may increase import duties but lower the income taxes paid by the subsidiary. The most likely reason for these effects is that the:

  A. Price is an arm's-length price.

  B. Price is a cost-plus price.

  C. Transfer price is too low.

  D. Transfer price is too high.

  Correct Answer: D

  A transfer price is the price charged by one subunit of a firm to another. When the subsidiarybuyer is in a foreign country, the higher the transfer, the higher the potential tariffs.However, the tax levied on a subsequent sale by the subsidiary will be lower because of its higher acquisition cost.

• Question 908:

  A firm buys new computer equipment from bankrupt companies and resells it in foreign markets at prices significantly below those charged by competitors. The firm is

  A. Engaged in dumping.

  B. Engaged in price discrimination.

  C. Operating in a gray market.

  D. Operating in a black market.

  Correct Answer: C

  In a gray market, products imported from one country to another are sold by persons trying to make a profit from the difference in retail prices between the two countries. In essence, the seller firm in this case was exploiting a price difference between markets.

• Question 909:

  Gray market activity is in essence a form of arbitrage. To prevent this activity by their distributors, multinational firms:

  I. Raise prices charged to lower-cost distributors.

  II. Police the firms' distributors.

  III.

  Change the product.

  A.

  I only.

  B.

  I and II only.

  C.

  II and Ill only.

  D.

  I, II, and Ill.

  Correct Answer: D

  In a gray market, products imported from one country to another are sold by persons trying to make a profit from the difference in retail prices between the two countries. These activitiesclearly lower the profits in some markets of the multinational firm that was the initial seller. One response is to monitor the practices of distributors and retaliate if necessary. A second response is to charge higher prices to the low-cost distributors to reduce their incentives to participate in a gray market. A third response is to differentiate products sold in different countries, e.g., by adapting the product or offering distinct service features.

• Question 910:

  A firm that manufactures refrigerators sold ice boxes in urban areas of less developed countries. Many residents lacked electricity to power refrigerators but could purchase blocks of ice from local vendors for use in ice boxes. According to Keegan's model of adaptation strategies, this firm adopted a strategy of

  A. Product adaptation.

  B. Dual adaptation.

  C. Backward invention.

  D. Forward invention.

  Correct Answer: C

  Using a product invention strategy, a new product is created specifically for a certain country or regional market. A product may either include advancements for developed countries or have certain elements removed in places where a lower cost is a key selling point. Thus, an ice box, a precursor of the modern refrigerator, is a backward invention.