Deck 15: Licensing, Franchising, and Other Contractual Strategies

Question 1

A collective mark ________.

A) is intended to improve the product's aesthetics and usability as well as increase its production efficiency, performance, or marketability
B) protects original works of authorship, giving the creator the exclusive right to reproduce the work, display and perform it publicly, and authorize others to perform these activities
C) is a distinctive design, symbol, logo, word, or series of words placed on a product label
D) is a logo belonging to an organization whose members use it to identify themselves and associate their products with a level of quality or accuracy, geographical origin, or other positive characteristic

Answer 1

D

Question 2

When a firm allows others to use an entire business system in exchange for compensation, the arrangement is known as ________.

A) industrial design rights
B) franchising
C) joint venture
D) equity venture

Answer 2

B

Question 3

Contractual entry strategies in international business are cross-border exchanges in which the relationship between the focal firm and its foreign partner is governed by an explicit contract.

Answer 3

True

Question 4

Which of the following is provided by the licensor in a licensing agreement?

A) a monetary down-payment plus royalties for all products sold locally
B) a combination of intellectual property and technical information and assistance
C) a storefront or facility and the necessary materials to make the product
D) a combination of a lump-sum payment and the intellectual know-how

Question 5

The purpose of intellectual property rights is to ________ so they can exploit their inventions not only to recoup their investment costs and create commercial advantage but also to acquire power and market dominance free of direct competition.

A) prevent excessive regulation and government bureaucracy
B) grant a firm permission to use another firm's proprietary names
C) allow inventors monopoly advantage for a specified period of time
D) allow a firm to use an entire business system in exchange for compensation

Question 6

An industrial design is intended to ________.

A) eliminate the possibility of the design being copied
B) improve a product's aesthetics and usability as well as increase its production efficiency, performance, or marketability.
C) protect firms from intellectual property theft
D) protect information of commercial value

Question 7

In a licensing agreement, the licensee provides ________.

A) the rights to use its industrial design
B) intellectual property, technical information, and assistance
C) a combination of down-payment plus royalty payments
D) the know-how and supporting products, such as raw materials and components

Question 8

Which of the following is an example of intellectual property?

A) systems of measurement
B) McDonald's golden arches
C) an unpublished book
D) a phone directory

Question 9

A ________ is a fee paid periodically to compensate a licensor for the temporary use of its intellectual property, often based on a percentage of gross sales generated from the use of the licensed asset.

A) duty
B) residual
C) royalty
D) tariff

Question 10

Patents provide inventors the right to prevent another person or company from selling or using an invention for up to twenty years.

Question 11

Which of the following is characteristic of cross-border contractual relationships?

A) When compared to FDI, they are less susceptible to volatility and risk, and tend to bring both parties a predictable stream of revenue.
B) The focal firm attains maximum control by establishing a physical presence, and ownership of key assets, in the foreign market.
C) It attracts high attention and criticism for the focal firm because of the local perception of foreign entities.
D) They are governed by a contract that provides the focal firm with no control over the foreign partner.

Question 12

A patent is granted to those who invent or discover a new and useful process, device, or manufactured product or an improvement on these.

Question 13

Which of the following is TRUE about cross-border contractual relationships?

A) It is a more visible strategy than FDI and draws a lot of criticism from the local market.
B) They are more susceptible to volatility and risk compared to FDI.
C) They attract less attention and less of the criticism sometimes directed at firms that enter through more visible strategies such as FDI.
D) Focal firms use contractual relationships as an advanced entry strategy in foreign markets.

Question 14

Exporting and foreign direct investing are two common types of contractual entry strategies.

Question 15

Explain the role of intellectual property rights in foreign market contractual strategies. What constitutes the infringement of intellectual property?

Question 16

An industrial design is intended to improve the product's aesthetics and usability as well as increase its production efficiency, performance, or marketability. The Volkswagen logo is a well-known industrial design.

Question 17

Which of the following is NOT provided by the licensor?

A) ongoing managerial guidance
B) technical information and assistance
C) an advisory role
D) trademark

Question 18

Describe six unique qualities shared by all cross-border contractual relationships.

Question 19

Which of the following is an example of licensing?

A) Saks Inc. entered China by giving a retail chain in China the authority to use Saks Fifth Avenue name for a flagship department store in Shanghai.
B) An Indian automobile manufacturing company buys engines from a Japanese manufacturer for its environmentally friendly cars.
C) A South-Korean consumer electronics manufacturer produces the screens for its brand of television and sends orders to a factory in China to manufacture the casing for the television.
D) A U.K-based motorcycle manufacturer produces limited-edition customizations of the company's stock models and sells it to customers around the world.

Question 20

A cross-border contractual relationship, which is governed by an explicit contract, provides the focal firm with ________ over the foreign partner.

A) a low level of control
B) a moderate level of control
C) a high level of control
D) seldom any control

Question 21

In a licensing agreement, the licensee is both the owner and user of intellectual property.

Question 22

In a licensing agreement, ________ is responsible for local sales.

A) the licensee
B) patent owner
C) the licensor
D) copyright partner

Question 23

The reputation of a licensor will be jeopardized by a licensing agreement if the licensee ________.

A) markets competing products for significantly lower prices
B) uses the licensing asset to create products of poor quality
C) refuses to pay the agreed upon royalties to the licensor
D) does not guarantee future expansion in the market

Question 24

Which of the following is protected under copyright laws?

A) the Nike Swoosh
B) the art of Jackson Pollock
C) McDonald's clown shaped man with puffed out costume legs
D) Winnie the Pooh image

Question 25

In a typical licensing agreement, after the relationship is established, the licensor is not required to make a capital investment in the foreign market.

Question 26

What is cross-licensing? Why does the pharmaceutical industry tend to favor cross-licensing arrangements? Explain your answer in a short essay.

Question 27

By establishing a brand name and market power through a licensing agreement, licensors are able to ________.

A) establish a more durable presence in the local market
B) control the use of the licensed asset
C) control the dissipation of important intellectual property to competitors
D) avoid the risk of creating a future competitor

Question 28

Which of the following is an example of a trademark licensing agreement?

A) a China-based consumer electronic company that has invented a flexible casing for its MP3 players
B) a Thailand-based pharmaceutical company that receives manufacturing knowledge from a U.S-based pharmaceutical
C) a tee shirt manufacturer in Bangladesh making shirts with the Harley Davidson logo
D) a U.S.-based clothing company that opens a factory in Vietnam and Cambodia to utilize low-labor costs

Question 29

An advantage of licensing is that firms are able to ________.

A) enter markets with extensive trade barriers
B) guarantee a basis for future expansion
C) control how the licensed asset is used
D) resolve disputes easily

Question 30

How are trademarks established in the United States and abroad? What are some of the difficulties faced by firms regarding the protection of trademarks? Explain with an example.

Question 31

A know-how agreement is one in which the focal firm provides technological or management knowledge about how to design, manufacture, or deliver a product or a service.

Question 32

________ is the world's leading licensing firm, with $56.6 billion in revenues.

A) Nickelodeon
B) The Walt Disney Company
C) Mattel
D) Major League Baseball

Question 33

Which of the following is an advantage of licensing?

A) It is ideal for products, services, or knowledge that is highly complex.
B) It is easy to maintain control over how the licensed asset is used.
C) It requires very little capital investment in the foreign market.
D) It guarantees a basis for future expansion in the market.

Question 34

Which of the following is characteristic of a know-how agreement?

A) exclusive rights to reproduce original art work
B) permission to use manufacturing facilities for a fee
C) exchanging technological or management information for royalties
D) trading the use of a name brand for management advice

Question 35

The greatest amount of licensing occurs in the ________ industries.

A) pharmaceutical
B) music
C) toy
D) mining

Question 36

Explain franchising as a foreign market entry strategy, and why franchising is a more comprehensive strategy than licensing.

Question 37

Which of the following is characteristic of exclusive licensing agreements?

A) The licensor is not allowed to interfere with the production or marketing of the licensed asset.
B) It ensures payment from the licensee to the licensor upon receipt of an export shipment.
C) The licensee cannot cancel the contract with the licensor even if sales of the licensed asset are poor.
D) The licensee is prohibited from sharing the licensed asset with another company within a specified region.

Question 38

Explain how licensing works as an entry strategy into foreign markets. Describe the risks faced by technological firms that enter licensing agreements in foreign countries.

Question 39

Which of the following is a disadvantage of licensing for technological firms?

A) It is not appropriate for entering markets that pose substantial country risk.
B) It requires high capital investment and the presence of the technological firm in the foreign market.
C) It restricts flexibility in the foreign market due to the technological firm's ownership of key assets in the target market.
D) It increases the risk of creating a future competitor.

Question 40

Cross-licensing often occurs in the semiconductor and chemical industries, and other intellectual property is acquired in reciprocal licensing arrangements between firms in order to ________.

A) divide the costs of production and marketing between competing firms
B) avoid research duplication and building on each other's innovations
C) protect the inventions and designs of small firms from large MNEs
D) decrease the likelihood of industrial spying and theft among firms

Question 41

Which of the following is characteristic of master franchise arrangements?

A) subfranchises to other independent businesses and thus assumes the role of the local franchisor
B) The franchisee provides completely standardized business activities, replicated across diverse markets.
C) franchise networks where franchisor provides a lump-sum payment to get started in a foreign market
D) franchise networks that pay fewer royalties to franchisors

Question 42

One of the disadvantages of licensing is that it requires the licensor to make a high capital investment in the foreign market.

Question 43

In a franchising agreement, the franchisee provides training, ongoing support, and the right to participate in cooperative marketing programs to the franchisor.

Question 44

In a master franchising agreement, the master franchisee has the right to subfranchise to other independent businesses and thus assume the role of the local franchisor.

Question 45

Describe five advantages of licensing agreements from the perspective of the licensor.

Question 46

Wonder Cat Licensing (Scenario)
Wonder Cat is a popular, new cartoon series created by the U.S-based All Cartoon Channel (ACC). Currently, the only Wonder Cat item available for sale are shirts that are sold exclusively through the ACC Web site. The cartoon series is a big hit in China, and as a result ACC has been approached by a Chinese firm about a licensing agreement. ACC executives are considering the pros and cons of such an agreement before making any final decisions.
Which of the following most likely supports an ACC decision to NOT enter a licensing agreement with the Chinese firm?

A) ACC does not want to invest capital for FDI in the Chinese market.
B) ACC desires a low-risk, low-cost strategy to internationalize the Wonder Cat character.
C) The Chinese market restricts ownership of local operations by foreign firms.
D) ACC wants to maintain firm control of how the Wonder Cat character is used.

Question 47

One of the advantages of licensing is that the levels of risk from such agreements are typically lower than for FDI.

Question 48

Information technology has increased the success and growth of international franchising operations by ________.

A) eliminating the need for corporate meetings to discuss quality control
B) improving communication between MNE managers and their franchisees
C) reducing Internet sales and the need for freight forwarding services
D) assigning franchisors maximum control to oversee franchisees' activities

Question 49

When compared to licensing agreements, the relationships established in franchising arrangements are typically volatile and short-term.

Question 50

Wonder Cat Licensing (Scenario)
Wonder Cat is a popular, new cartoon series created by the U.S-based All Cartoon Channel (ACC). Currently, the only Wonder Cat item available for sale are shirts that are sold exclusively through the ACC Web site. The cartoon series is a big hit in China, and as a result ACC has been approached by a Chinese firm about a licensing agreement. ACC executives are considering the pros and cons of such an agreement before making any final decisions.
Which of the following questions would be more important to evaluate before ACC enters a licensing agreement with the Chinese firm?

A) What other cartoon characters in the U.S. have been licensed to Chinese firms?
B) Should the Wonder Cat shirts that were available on the firm's Web site be removed from sale?
C) Will the Wonder Cat products made by the Chinese firm be available for sale on the ACC Web site?
D) How much control will ACC be able to maintain over the use of the Wonder Cat brand?

Question 51

In a system franchising agreement, the franchisee provides ________.

A) training and ongoing support
B) trademark-protected business concepts
C) down-payment plus royalty
D) usage rights for products and patents

Question 52

In typical licensing agreements, the licensee compensates the licensor with a down-payment plus ongoing royalties based on sales.

Question 53

Wonder Cat Licensing (Scenario)
Wonder Cat is a popular, new cartoon series created by the U.S-based All Cartoon Channel (ACC). Currently, the only Wonder Cat item available for sale are shirts that are sold exclusively through the ACC Web site. The cartoon series is a big hit in China, and as a result ACC has been approached by a Chinese firm about a licensing agreement. ACC executives are considering the pros and cons of such an agreement before making any final decisions.
Which of the following statements most likely supports an ACC decision to enter into a licensing agreement with the Chinese firm?

A) Royalties from toys and apparel would be initially minimal.
B) The Wonder Cat brand's products could be easily counterfeited in other markets except in the Chinese markets.
C) The Chinese government restricts complete ownership of local operations by foreign firms.
D) China exclusively opts for high-control strategies such as FDI.

Question 54

Licensing agreements enable energy and defense firms to enter nations that allow the foreign ownership of businesses related to national security.

Question 55

Which of the following countries is home to the largest number of franchisors?

A) United States
B) Britain
C) China
D) Canada

Question 56

Franchising is more comprehensive than licensing because the franchisor prescribes virtually all of the business activities of the franchisee.

Question 57

In a system franchising agreement, the franchisor provides ________.

A) down-payment plus royalty
B) production and marketing methods
C) lump-sum payment
D) sale of related products

Question 58

Which of the following is an example of franchising?

A) An Italian clothing company opens factories in China and Bangladesh to reduce manufacturing costs.
B) A U.S-based quick-service restaurant gives rights to another business to use its entire business system in exchange for compensation and royalties.
C) A U.S.-based animation company allows factories in China to use their famous cartoon character on mugs and stationery.
D) A Germany automobile manufacturer opens an office in the Philippines for its customer care operations.

Question 59

Explain franchising as an entry strategy into foreign markets. Describe three advantages and three disadvantages of franchising for the franchisee.

Question 60

Which of the following is TRUE about franchising as an entry strategy?

A) It provides firms with minimum control over foreign operations.
B) It is an ownership-based international business activity.
C) It provides ownership with greater control but also typically restricts a firm's ability to expand more rapidly abroad.
D) It is typically characterized as an unstable, short-term entry strategy.

Question 61

Which of the following statements is TRUE of leasing?

A) It is an arrangement in which a contractor supplies managerial know-how to operate a hotel, hospital, airport, or other facility in exchange for compensation.
B) The lessor transfers ownership of the property in exchange for a lump-sum payment.
C) It is a high-risk and high-cost method of entering a foreign market.
D) A major advantage for the focal firm is the ability to gain quick access to target markets, while putting assets to use in earning profits.

Question 62

________ is an arrangement in which the focal firm or a consortium of firms plans, finances, organizes, manages, and implements all phases of a project abroad and then hands it over to a foreign customer after training local workers.

A) Home-replication strategy
B) Exporting
C) Turnkey contracting
D) Equity-based collaborative venture

Question 63

Turnkey contracting is an arrangement in which the focal firm or a consortium of firms plans, finances, organizes, manages, and implements all phases of a project abroad and then hands it over to a foreign customer after training local workers.

Question 64

Which of the following makes it difficult to completely duplicate a food franchise in every global market?

A) different local ingredients
B) differences in language
C) low bargaining power
D) need to invest substantial capital

Question 65

Which of the following is an advantage of franchising to the franchisor?

A) It is easier to maintain control over a franchisee.
B) It is a low-risk, low-cost entry strategy.
C) There is seldom any risk of franchisees becoming future competitors.
D) There is seldom a requirement for the franchisor to become familiar with foreign laws and regulations.

Question 66

Professional service firms, such as PriceWaterhouseCooper, often enter large international markets through FDI but usually use ________ to enter small markets.

A) equity-based collaborative ventures
B) affiliates
C) BOT arrangement
D) turnkey contracting

Question 67

A key challenge faced by the franchisee is the decreased likelihood of operating an independent business.

Question 68

Azoo Government Projects (Scenario)
The nation of Azoo needs the assistance of a contractor to construct a new bridge and a subway system. The nation lacks the skilled labor and technical know-how to handle such large-scale projects. Representatives of the Azoo government are reviewing the project bids provided by two different international contractors. Contractor A proposes a turnkey contract for Azoo. Contractor B proposes a build-operate-transfer arrangement.

-The government of Azoo might select Contractor B in order to ________.

A) prevent the builder from operating in the country for even a short period of time
B) avoid rental fee, user fee, and tolls during the operational stage of the bridge and subway system
C) build the projects cost-effectively
D) increase the number of visitors to Azoo

Question 69

Host-country governments often encourage franchising because most of the money generated by the franchise remains in the local economy.

Question 70

The franchisor can rapidly internationalize by leveraging the drive and knowledge of local franchisees but risks disseminating its intellectual property to unauthorized parties.

Question 71

Azoo Government Projects (Scenario)
The nation of Azoo needs the assistance of a contractor to construct a new bridge and a subway system. The nation lacks the skilled labor and technical know-how to handle such large-scale projects. Representatives of the Azoo government are reviewing the project bids provided by two different international contractors. Contractor A proposes a turnkey contract for Azoo. Contractor B proposes a build-operate-transfer arrangement.

-Which of the following most likely supports Azoo government's decision to award the project bid to Contractor A?

A) Azoo leaders want immediate ownership of the public projects.
B) Azoo leaders want long-term help with operation of the subway.
C) Azoo lacks qualified workers to maintain public works projects.
D) Azoo lacks the financial resources to purchase large machinery.

Question 72

Licensing and franchising are complex undertakings and require skillful research, planning, and execution.

Question 73

Azoo Government Projects (Scenario)
The nation of Azoo needs the assistance of a contractor to construct a new bridge and a subway system. The nation lacks the skilled labor and technical know-how to handle such large-scale projects. Representatives of the Azoo government are reviewing the project bids provided by two different international contractors. Contractor A proposes a turnkey contract for Azoo. Contractor B proposes a build-operate-transfer arrangement.
Contractor A would most likely oversee each of the following EXCEPT ________.

A) designing the bridge
B) operating the subway system continuously
C) engineering the bridge
D) constructing the subway system

Question 74

Which of the following is an advantage of franchising to the franchisee?

A) reduced expenses as the franchisor provides supplies, equipment, and products
B) Minimum initial investments or royalty payments are applicable.
C) use of a well-known, recognizable brand name
D) The franchisee holds much power, including superior bargaining power.

Question 75

Under a build-operate-transfer (BOT) arrangement, a firm or consortium of firms contracts to build a major facility abroad and then transfers ownership to the project sponsor, typically the host-country government or public utility.

Question 76

To minimize the complexity of franchising, focal firms must ________.

A) bribe government officials to reduce nontariff trade barriers
B) have a subjective view of moral and ethical standards
C) conduct advance research on the host country's laws on intellectual property
D) appoint managers from the home country to avoid legal disputes

Question 77

Which of the following statements is TRUE about international franchisors?

A) Entry into numerous foreign markets is tough and costly.
B) Maintaining control over franchisees is seldom difficult.
C) Franchisors need to invest substantial capital.
D) Franchisees may use franchise knowledge to start a competing business.

Question 78

________ is an arrangement in which a contractor supplies managerial know-how to operate a hotel, hospital, airport, or other facility in exchange for compensation.

A) Build-operate-transfer
B) Management contract
C) Leasing
D) Exporting

Question 79

Which of the following challenges is applicable to the franchisee in a franchising agreement?

A) The franchisee must make their own arrangements to acquire initial training and know-how.
B) The franchisor holds much power, including superior bargaining power.
C) There is no scope to operate an independent business.
D) There is decreased likelihood of business success.

Question 80

Leasing is especially beneficial to ________.

A) advanced economies
B) economies with high PPP
C) First World countries
D) developing economies