Deck 13: Entering Foreign Markets

Question 1

Licensing gives an international firm tight control over manufacturing, marketing, and strategy that is required for realizing experience curve and location economies.

Answer 1

False

Question 2

Cross-licensing agreements increase the probability that firms might lose their know-how and technology to a partner firm.

Answer 2

False

Question 3

When assessing the attractiveness of a country as a potential market, an international business must understand how the benefits, costs, and risks of doing business in that country will balance out.

Answer 3

True

Question 4

In international business, an early entrant to a foreign market may be at a disadvantage relative to a later entrant, if regulations change in a way that diminishes the value of an early entrant's investments.

Question 5

If an international firm's core competency is based on proprietary technology, entering a joint venture might risk losing control of that technology to the joint-venture partner.

Question 6

The probability of survival decreases if an international business enters a national market after several other foreign firms have already done so.

Question 7

Licensing increases the risk of losing control over a firm's proprietary technological know-how.

Question 8

Establishing a wholly owned subsidiary provides a company with tight control over the operations in another country.

Question 9

If transportation costs are high for bulky products, exporting as a mode of entry into foreign markets may not be economical.

Question 10

When a firm's competitive advantage is based on technological competence, a joint venture is the preferred mode of entry into a foreign market because it reduces the risk of losing control over that competence.

Question 11

Similar to a licensing agreement, a joint venture puts the control of a company's technology at risk.

Question 12

Exporting, as a mode of entry into foreign markets, does not help a firm achieve experience curve and location economies.

Question 13

In a joint venture, a firm benefits from a local partner's knowledge of the host country's competitive conditions, culture, language, political systems, and business systems.

Question 14

With a wholly owned subsidiary, a firm shares the costs of setting up overseas operations with partner firms.

Question 15

The present purchasing power of consumers in a new market is not a factor used by a business to assess the long-run economic benefits of doing business with that nation.

Question 16

Fast food restaurants are good examples of the franchise model.

Question 17

An international firm that perceives its technological advantage to be transitory and susceptive to rapid imitation might want to license its technology to foreign firms.

Question 18

A business that chooses to enter an international market on a large scale implies rapid entry.

Question 19

The most typical joint venture is a 50/50 venture, in which there are two parties, each of which holds a 50 percent ownership stake and contributes a team of managers to share operating control.

Question 20

A firm contemplating expansion should choose a foreign market based on an assessment of the nation's long-run profit potential.

Question 21

When WoodFire Stoves decided to be a first-mover in the Canadian market, it had to spend 25 percent of its budget on promotional videos and other educational tools that explained why a WoodFire Stove product was a necessary and a cost-saving method of heat. The costs the company incurred are known as

A) retail costs.
B) competitive costs.
C) greenfield costs.
D) pioneering costs.
E) moving costs.

Question 22

First-mover disadvantages refer to

A) disadvantages associated with entering a foreign market before other international businesses.
B) costs that a late entrant to a foreign market has to bear.
C) a direct restriction on the quantity of a good that can be imported into a country.
D) imperfections in the operation of the market mechanism.
E) disadvantages experienced by being a late entrant in a foreign market.

Question 23

Many gluten-free food options are found on the store shelves in the United States, but they are scarcely available in international markets. Given the increasing awareness of a healthy lifestyle, such products satisfy an unmet need. Therefore, a product such as gluten-free food in international markets

A) is likely to have greater value.
B) will have to be priced relatively low.
C) will see a decrease in sales volume.
D) is not suited to these markets.
E) will fail to make a profit.

Question 24

According to Christopher Bartlett and Sumantra Ghoshal, how can local companies differentiate themselves from foreign multinationals?

A) licensing their core technologies
B) entering into turnkey projects
C) standardizing their product offerings
D) focusing on market niches
E) raising trade barriers

Question 25

Locally manufactured Bubbles is a popular brand of detergent in Germany. However, with the entry of a foreign multinational into the market, Bubbles begins to lose market share. According to Christopher Bartlett and Sumantra Ghoshal, how can the producer of Bubbles best differentiate itself from foreign multinationals?

A) licensing their core technologies
B) entering into turnkey projects
C) standardizing their product offerings
D) focusing on market niches
E) raising trade barriers

Question 26

The probability of survival for an international business increases if it

A) enters a national market after several other foreign firms have already done so.
B) avoids the use of countertrade agreements.
C) enters a national market early.
D) enters a foreign market via turnkey projects.
E) avoids engaging in joint ventures.

Question 27

When an international firm makes an acquisition in a foreign market, it acquires valuable intangible as well as tangible assets.

Question 28

One reason why a relatively poor country may be an attractive target for inward investment is the potential for

A) rapid economic growth.
B) political instability.
C) currency depreciation.
D) a high cost of living.
E) a less developed infrastructure.

Question 29

An advantage of establishing a greenfield venture in a foreign country is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants.

Question 30

Sun Energy is the first hydro-based energy plant in Australia, and it has captured a large portion of the market. It has created a strong brand name that everyone associates with energy efficiency and cost savings. In this market, Sun Energy is demonstrating

A) first-mover advantages.
B) the small-scale entry.
C) pioneering costs.
D) a greenfield venture.
E) purchasing power parity.

Question 31

Acquisitions commonly take a long time to execute and, for this reason, are not favored by most firms.

Question 32

A country that ________ presents a favorable benefit-cost-risk trade-off scenario for foreign expansion.

A) has large private-sector debt
B) has a free market system
C) is experiencing a dramatic upsurge in inflation rates
D) is heavily populated
E) is less developed and politically unstable

Question 33

An international business can command higher prices for a particular product in a foreign market when

A) the product is widely available in the foreign market.
B) sales volume is relatively low in the foreign market.
C) the product offers greater value to customers in the foreign market.
D) the product is more suitable to other foreign markets.
E) domestic competitors are selling alternatives at reduced prices.

Question 34

The liability associated with foreign expansion is greater for foreign firms that

A) choose to ride on an early entrant's investments.
B) use countertrade agreements
C) enter a national market early.
D) ride down the experience curve behind their rivals.
E) avoid pioneering costs.

Question 35

Service-based companies typically favor a combination of franchising and master subsidiaries to control the franchises within a region.

Question 36

According to David Ravenscraft and Mike Scherer's study, many acquisitions destroy rather than create value.

Question 37

Supple SkinCare Inc. is spending significant money educating customers on the value of its mineral-based skincare line as it moves into several new international markets. The money to educate customers is a form of

A) first-mover advantages.
B) political costs.
C) licensing fees.
D) pioneering costs.
E) opportunity costs.

Question 38

Gen-Fast Shoes wants to expand internationally and is deciding if its line of tennis shoes can be sold at a high price in Europe. One way for Gen-Fast Shoes to assess this is to determine whether these types of shoes in the foreign market offer customers greater

A) cost.
B) exports.
C) value.
D) competition.
E) production.

Question 39

In international business, an advantage of being a late entrant in a foreign market is the ability to

A) create switching costs that tie customers into products or services.
B) capture demand by establishing a strong brand name.
C) build sales volume and ride down the experience curve before early entrants.
D) ride on an early entrant's investments in learning and customer education.
E) create a cost advantage over first movers.

Question 40

The text points out two things that can affect the value an international business creates in a foreign market: the sustainability of its product offering and the

A) population density in the foreign market.
B) political stability of the foreign market.
C) nature of indigenous competition.
D) per capita income in the foreign market.
E) type of political system in the foreign market.

Question 41

What is an example of an intangible property?

A) infrastructure
B) machinery
C) leased equipment
D) advanced computing systems
E) patent

Question 42

An oil-rich country in the Middle East wants to develop its own refining industry but lacks the technology to do so. To accomplish their goal, they decide to enter into an agreement with a U.S. firm that has this technology. The U.S. firm is pleased to make this agreement because without it, they could never gain value from their technology in this country due to its limits on FDI. What type of agreement did these companies use?

A) acquisition
B) turnkey
C) export
D) subsidiary
E) franchise

Question 43

High transportation costs are a disadvantage for companies that

A) are service based.
B) produce and ship products regionally.
C) ship large, bulky products.
D) use customization.
E) ship component parts.

Question 44

In a ________, a firm agrees to set up an operating plant for a foreign client and hand over the plant when it is fully operational.

A) franchising agreement
B) turnkey project
C) licensing agreement
D) wholly owned subsidiary
E) joint venture

Question 45

As the Chief Financial Officer for a metal refinery, Kaylee disagrees with using a turnkey strategy to enter into the Asian market. She is concerned that the company will not benefit from a long-term interest and could lose financially if the market proves to be successful. What is one way the metal refinery could get around this concern?

A) Sell competitive advantage to competitors.
B) Agree to import another product from the Asian market.
C) Take a minority equity interest in the operation.
D) Withhold vital process technology from the local firm.
E) Establish a franchise operation.

Question 46

Turnkey projects, being short-term propositions, can be disadvantageous for a firm if a country subsequently proves to be a major market for the output of the process that has been exported. The firm can get around this problem by

A) selling competitive advantage to competitors.
B) competing with the local firm in the global market.
C) taking a minority equity interest in the operation.
D) withholding vital process technology from the local firm.
E) establishing a joint venture with a local firm.

Question 47

When Yum Brands (which owns KFC, Taco Bell, and Pizza Hut) entered China, it had to spend heavily to establish itself in that market. What would be a disadvantage of Yum Brands' large-scale entry into China?

A) decrease in a firm's exposure to the foreign market
B) difficulty attracting customers and distributors for the product
C) inability to build rapid market-share irrespective of the scale of entry
D) limited product acceptance due to the avoidance of potential losses
E) availability of fewer resources to support expansion in other desirable markets

Question 48

Farm Tuff Inc. hired a local agent to handle marketing when it started exporting products to Europe. Unfortunately, the local agent also handled the marketing for a competitor, Agri-Corp., and Farm Tuff soon realized the agent could not be "loyal" to their product. What should Farm Tuff do to best remedy this situation to its advantage?

A) Implement a tariff on their products.
B) Discontinue their exporting efforts.
C) Export only process technology to foreign firms.
D) Develop a licensing deal instead of exporting.
E) Set up a wholly owned subsidiary to handle local marketing.

Question 49

California Fresh Food wants to expand internationally. Sales Director Sun-Jun Lee prefers that the company export to foreign markets. What rationale should Lee use to show the advantage of exporting as a mode of entry?

A) A firm can avoid the cost of establishing manufacturing operations in the host country.
B) A firm shares the development costs and risks with its host partner.
C) A firm can earn returns from process technology skills in countries where FDI is restricted.
D) A firm has access to local partner's knowledge.
E) A firm has the ability to engage in global strategic coordination.

Question 50

Small-scale entry into a foreign market makes it difficult to build market share because it

A) necessitates rapid entry into a foreign market.
B) is associated with a lack of commitment demonstrated by the foreign firm.
C) leads to escalating strategic commitments.
D) requires that extra time be spent in analyzing a foreign market.
E) leads to increased exposure to a foreign market.

Question 51

When considering modes of entry, Christopher Bartlett and Sumantra Ghoshal suggest that companies based in developing nations should

A) build up financial resources to match those of the largest global competitors.
B) enter foreign markets at a similar time and scale as multinational companies.
C) enter markets rapidly and exit at an equally rapid pace to avoid heavy losses.
D) benchmark operations and performance against foreign multinationals.
E) not focus on market niches that multinational companies ignore.

Question 52

Storm Fighters Inc. makes winter clothing in the United States, and it is looking to distribute its products in Europe. Rather than build and maintain a manufacturing facility in the Netherlands, the company decides to ship its winter gear directly from its plant in Montana. What type of entry mode is the company using?

A) exporting
B) turnkey project
C) acquisition
D) greenfield venture
E) licensing

Question 53

One disadvantage of large-scale entry into a foreign market is the

A) decrease in a firm's exposure to the foreign market.
B) difficulty attracting customers and distributors for the product.
C) inability to build rapid market-share irrespective of the scale of entry.
D) limited product acceptance due to the avoidance of potential losses.
E) availability of fewer resources to support expansion in other desirable markets.

Question 54

Which type of entry allows a company to learn about the foreign market while limiting the firm's exposure to that market?

A) early entry
B) small-scale entry
C) large-scale entry
D) late entry
E) rapid entry

Question 55

Porter's PaleAle is considering small-scale entry into the European market. What would be a disadvantage of small-scale entry for this firm?

A) possibility of escalating commitment leading to major financial losses
B) limited availability of resources for use in other markets
C) lack of flexibility associated with strategic commitments
D) increase in economic exposure due to minimal time spent in evaluating a foreign market
E) difficulty of building market share and capturing first-mover advantages

Question 56

A likely outcome of a foreign firm entering a developed nation on a small scale after other international businesses in the industry is

A) capturing first-mover advantages.
B) higher pioneering costs.
C) rapid increase in market share.
D) limited future growth potential.
E) rapid increase in sales volume.

Question 57

What is an advantage of turnkey projects as a mode of entry into foreign markets?

A) It is an ideal way to gain entry into a country where FDI is not limited by government regulations.
B) It is a useful strategy to earn great returns from the know-how of a technologically complex process.
C) It is an ideal way to establish a firm's long-term presence in a foreign country.
D) It helps protect a firm's competitive advantage.
E) The firm that enters into a turnkey project with a foreign enterprise avoids giving rise to potential competitors.

Question 58

Bossy Boots decided to export its products by hiring local marketing agents in each country. Over the years, Bossy Boots ran into various problems with these local marketing agents that affected both sales and profitability. Bossy Boots can overcome its problems with local marketing agents by

A) selling intangible property to a franchisee and insisting on rules to conduct the business.
B) changing agents frequently.
C) engaging in turnkey projects and exporting process technology to foreign firms.
D) entering into cross-licensing agreements with foreign firms.
E) setting up wholly owned subsidiaries in foreign nations to handle local marketing.

Question 59

How can firms avoid incurring high transport costs when exporting bulk products?

A) taking a minority equity interest
B) entering into a turnkey project with a foreign firm
C) manufacturing bulk products regionally
D) setting up subsidiaries irrespective of market reach
E) reducing the quantity of the product offering

Question 60

Complex and expensive technology is needed to develop products at Feel-Better Pharmaceuticals based in Austin, Texas. For this reason, the company plans to have a plant built in Portugal that is ready for full operation and will be used for products sold in Europe. What type of entry mode is Feel-Better Pharmaceuticals using?

A) wholly owned subsidiary
B) licensing
C) turnkey project
D) franchising
E) direct exporting

Question 61

Why should a high-tech firm avoid selecting licensing as a mode of entry?

A) threat of creating efficient partners
B) risk of losing control over technology
C) fear of rapid imitation of core technology
D) lack of a transitory technological advantage
E) inability to deter development costs

Question 62

Which entry mode into a foreign market best serves a high-tech firm because it reduces the risk of losing that competence?

A) turnkey projects
B) franchising
C) wholly owned subsidiaries
D) joint ventures
E) exporting

Question 63

Service Corp. International provides customer service support for a variety of industries. Their brand name is well known, and as a service firm, it does not have to protect any proprietary technology. What mode of entry is most suitable for service companies like Service Corp. International where its main asset is its brand name?

A) exporting
B) franchising
C) licensing
D) turnkey projects
E) cross-licensing

Question 64

The risks associated with learning to do business in a new culture are less if the firm

A) engages in global strategic coordination.
B) imposes strict marketing guidelines on how to do business.
C) enters a greenfield venture in the host country.
D) realizes substantial location economies.
E) acquires an established host-country enterprise.

Question 65

Comp-U-Learn Inc. prides itself on a competitive advantage based on their proprietary educational software technology. What two entry modes should the company avoid in order to minimize the risk of losing this technology?

A) joint venture and wholly owned subsidiary
B) exporting and franchising
C) acquisitions and greenfield ventures
D) licensing and joint venture
E) licensing and exporting

Question 66

One advantage of joint ventures is that

A) the foreign firm benefits from a local partner's knowledge of the host country.
B) the foreign firm can protect its technology from being appropriated by its local partner.
C) there is less cause for friction and conflict between the foreign and local partners.
D) it gives a firm tight control over subsidiaries, which enables it to realize experience curve or location economies.
E) the foreign firm does not have to bear any development costs and risks associated with opening a foreign market.

Question 67

Franchising as a mode of entry is employed primarily by

A) service firms.
B) manufacturing companies.
C) online outfits.
D) high-technology companies.
E) primary industries.

Question 68

A company might not want to consider ________ as a means of entry into a foreign market because it is generally the most costly method from a capital investment standpoint.

A) licensing
B) a wholly owned subsidiary
C) franchising
D) a joint venture
E) exporting

Question 69

John developed a food additive that replaces processed sugars. He granted the right to use this additive to a major cereal manufacturer, and John now receives a $0.50 royalty for every box of cereal sold that contains this additive. What is this an example of?

A) franchising
B) acquisition
C) licensing
D) exporting
E) turnkey project

Question 70

What is a drawback of licensing as a mode of entry into foreign markets?

A) The licensor has to bear all costs and risks associated with developing a foreign market.
B) Licensing does not give a firm tight control over manufacturing, marketing, and strategy.
C) Licensing does not benefit firms lacking the capital to expand operations overseas.
D) Licensing deals fail when there are barriers to foreign investment in a particular country.
E) A firm that enters into a licensing deal with a foreign country will have no long-term interest in that country.

Question 71

________ would be an example of an industry in which cross-licensing agreements are becoming increasingly common.

A) Glass-blowing
B) Biotechnology
C) Organic farming
D) Textiles
E) Weaving

Question 72

When two or more independent firms establish a new firm together, it is an example of

A) an acquisition.
B) franchising.
C) a joint venture.
D) a wholly owned subsidiary.
E) licensing.

Question 73

What is one way a wholly owned subsidiary can be established in a foreign market?

A) through a turnkey operation with a local partner
B) through franchising
C) by acquiring an established firm in the host nation
D) by exporting
E) through a licensing agreement

Question 74

Stacey Yung wants to open a Pizza Hut restaurant in Beijing and has an agreement with the restaurant chain in which she can use the trademark and must also follow a strict set of guidelines detailing how the business should operate. The Pizza Hut Corporation will receive a percentage of Stacey's revenues from her restaurant. What type of entry mode does this represent?

A) franchising
B) wholly owned subsidiary
C) licensing
D) acquisition
E) turnkey operation

Question 75

Cal-Com Systems is a high-tech firm looking to set up operations in a foreign country. The firm's core competency is in technological know-how. Which mode of entry would be most favorable to the firm if it wants to keep a tight control over its technology?

A) wholly owned subsidiary
B) joint venture
C) franchising
D) licensing
E) turnkey project

Question 76

What form of entry into a foreign market gives a firm tight control for coordinating a globally dispersed value chain?

A) signing joint-venture agreements
B) installing manufacturing units in locations with optimal factor conditions
C) setting up wholly owned marketing subsidiaries
D) establishing a greenfield venture
E) using foreign marketing agents

Question 77

An international firm considering foreign expansion should take into account that

A) the timing and scale of entry of foreign expansion are minor details in comparison with the choice of foreign market.
B) the long-run economic benefits of doing business in a country are solely a function of the country's population size.
C) if the firm's core competence is based on proprietary technology, entering a joint venture might risk losing control of that technology.
D) the costs and risks associated with foreign expansion are higher in economically advanced nations.
E) politically unstable and less developed nations offer favorable benefit-cost-risk trade-off conditions.

Question 78

Which mode of entry into foreign markets can result in a lack of control over quality?

A) exporting
B) franchising
C) turnkey projects
D) wholly owned subsidiaries
E) joint ventures

Question 79

What is a disadvantage of franchising?

A) The franchiser has to bear development costs and risks associated with foreign expansion.
B) Franchising leads to undesirable results for service firms.
C) It is difficult to maintain quality control across foreign franchisees that are distant from the franchiser.
D) The franchiser has no long-term interests in the foreign country.
E) It forces a franchiser to take out profits from one country to support competitive attacks in another.

Question 80

Jumpin' Joey Tennis Shoes, an Australian company, wants to expand its operations to China, a country that is politically, culturally, and economically different. The firm needs to select a mode of entry that would give it access to local knowledge, allow sharing of development costs and risks, and also be politically acceptable. Which mode of entry into foreign markets is most suitable for Jumpin' Joey Tennis Shoes?

A) wholly owned subsidiary
B) joint venture
C) exporting
D) greenfield investments
E) licensing