Deck 8: Managing Entry and Exit Decisions

Question 1

Is entering Shanghai a right move for Disneyland? Why?

Answer 1

Entering Shanghai seems like the right move for Disney. Shanghai presents great opportunities for Disney. China's huge population provides a large-sized market. The country's fast-growing economy and uprising middle class imply strong purchasing power and future growth. As an internationally renowned brand, Disney is able to leverage its intellectual property in the Chinese market. Its investment is also supported by local governments and state-owned partners, who believe Disneyland will boost local tourism-related industries. Moreover, as more than 60 theme parks are being planned in China, Disney needs to get into the market quickly to preempt competition. Certainly, Disney faces some challenges. The company needs to develop a good understanding of what will be best received by Chinese consumers. There is also the risk of cannibalization as the newer, larger Disneyland Shanghai may take customers away from its parks in Hong Kong and Tokyo.

Question 2

Compare and evaluate the entry modes used by Disney in the three locations.

Answer 2

Tokyo Disney Resort is owned and operated by an independent Japanese corporation, Oriental Land Co., Ltd. (OLC). Disney has a licensing agreement with OLC and earns royalties on the revenue of Tokyo Disney Resort. Licensing is generally considered a low-cost, low-risk entry mode. While Disney contributes existing intellectual property, OLC bears most of the capital required for the operation. However, licensing provides Disney with limited control and limited earnings from Tokyo Disneyland.
In Hong Kong and Shanghai, Disney formed joint ventures with local government-run or state-owned entities. Hong Kong Disneyland is owned and managed by Hong Kong International Theme Parks, a joint venture of Disney (47% equity) and the Hong Kong government (53% equity). Disney receives returns on equity, royalties and management fees. Shanghai Disney Resort is owned by Shanghai International Theme Park Company, a joint venture in which Shanghai Shendi Group owns 57% and Disney owns 43%. Shanghai Shendi Group is a consortium formed by three state-owned companies. In addition, a management company, Shanghai International Theme Park and Resort Management Company, in which Disney owns 70% and Shendi 30%, was created to design, construct, and operate Shanghai Disney Resort on behalf of the owner. While the management company charges management fees, Disney collects royalties based on the revenue of the resort. The joint ventures allow Disney to pool complementary resources from local partners. They also help lower risks and costs. However, Disney needs to share control and deal with potential conflicts of interest with local partners. It needs to set up safeguard mechanisms to protect its assets and interests, have detailed contracts and control systems to regulate partners' activities, and build trust with local partners.

Question 3

What are your thoughts on the future prospects of the three Disneyland parks in East Asia?

Answer 3

This is an open-ended question. The instructor may ask students to share their own thoughts. Basically, each park has its own opportunities and challenges. The Tokyo park has been generating stable revenues, but its future is restricted by the licensing agreement and Japan's lackluster economy. The Hong Kong park is conveniently located in a global city that attracts tourists from mainland China and many other nations, but it is relatively small and faces strong competition from Disneyland Shanghai. The Shanghai park is the largest, newest addition and taps into the large, fast-growing Chinese market, but the market may impose a high degree of uncertainty (e.g., economic slowdown, cultural differences).

Question 4

What was Target's strategy to enter Canada?

Question 5

Why did Target's strategy fail? Did the company do anything right?

Question 6

If you were the CEO of Target, how would enter international markets differently?

Question 7

Why did Hyundai, Tata Motors, and Geely all invest in the crowded European market?

Question 8

Compare and evaluate the strategic purposes of the three companies in Europe.

Question 9

What entry modes did they use? Why did they use different entry modes?

Question 10

Why did Starbucks use joint ventures to enter China initially?

Question 11

Why did Starbucks later shift its focus to wholly owned stores?

Question 12

If the company stresses global integration of its business operations, it needs to choose high-control entry modes. If the company aims for long-term development in a country, it may favor high-commitment, high-return entry modes like a wholly owned subsidiary or joint venture with majority equity.

Question 13

How would you rate the attractiveness of Myanmar to a global fast food chain like KFC?

Question 14

How was the timing of KFC's entry? Was it too early?

Question 15

What are the benefits and drawbacks of KFC's early entry strategy?

Question 16

How can a company evaluate the attractiveness of a foreign market? What factors should be considered?

Question 17

Describe the main strategic purposes of international expansion. What are the implications of these purposes for entry decisions?

Question 18

Describe the basic strategy types of international expansion. How do they affect international business activities?

Question 19

What are the main entry modes a company can use to enter international markets? How are they different from one another?

Question 20

How should a company choose an appropriate entry mode for a given country?

Question 21

What tradeoffs should be considered when deciding on the timing and scale of entry?

Question 22

Which of the following increases the attractiveness of a foreign market?

A) Economic changes
B) The liability of foreignness
C) Local competition
D) Market growth

Question 23

Which of the following statements is incorrect?

A) Foreign companies face extra risks because they are unfamiliar with a local market.
B) Foreign companies are subject to extra costs due to spatial distance.
C) Foreign firms always face negative perceptions because they are foreign.
D) Foreign firms can benefit from government policies that provide incentives.

Question 24

The following factors increase the costs of doing business overseas except _____.

A) Purchasing power
B) Regulation compliance
C) Cross-border coordination
D) Underdeveloped infrastructure

Question 25

The following are usually considered a risk of doing business overseas except _______.

A) Political instability
B) The halo effect of foreign brands
C) Property rights violation
D) Economic mismanagement

Question 26

The following factors increase the need for local responsiveness except __________.

A) Different customer preferences
B) Different distribution channels
C) Price competition
D) Local regulations

Question 27

The following approaches help MNCs reduce costs except ________.

A) Seeking economies of scale
B) Sourcing resources and operations globally
C) Standardizing products and services
D) Complying with local rules

Question 28

Which of the following strategies indicates an MNC seeks both cost reduction and local responsiveness?

A) Global standardization strategy
B) Multi-domestic strategy
C) Transnational strategy
D) Home replication strategy

Question 29

A_____ strategy should be used when pressures for cost reduction are strong and demands for local responsiveness are minimal.

A) Global standardization strategy
B) Multi-domestic strategy
C) Transnational strategy
D) Home replication strategy

Question 30

Which of the following is not a typical characteristic of multidomestic strategy?

A) Customized products and services for different markets
B) Low-cost operations due to worldwide integration
C) Decision power delegated to local business units
D) Duplication of business activities in different markets

Question 31

Which of the following is not a typical characteristic of global standardization strategy?

A) Strong headquarter control over global operations
B) Relatively standard products and operations
C) Relatively autonomous local units
D) Strong coordination among worldwide operations

Question 32

Which of the following is a main drawback of transnational strategy?

A) Difficult to implement
B) Weak on cost reduction
C) Low on local responsiveness
D) High on global integration

Question 33

Home replication strategy cannot be used when ________________.

A) foreign markets are viewed as a simple extension of the domestic market
B) a MNC has a low need for local responsiveness and cost reduction
C) a MNC has a proprietary product that faces limited competition
D) a MNC faces increasing competitions on price and product features

Question 34

Which of the following entry mode does not involve equity investment?

A) Licensing
B) Joint venture
C) Greenfield investment
D) Acquisition

Question 35

An exporter typically faces the following challenges except ____________.

A) unknown foreign buyers
B) international trade barriers
C) high-risk entry into another country
D) international sales and payment terms

Question 36

Which of the following does Incoterm stipulate that the exporter delivers the goods on board the vessel named by the buyer at the port of shipment?

A) FOB (free on board)
B) CFR (cost and freight)
C) CIF (cost, insurance, and freight)
D) DDP (delivered duty paid)

Question 37

When an exporter quotes a CIF price, the price include the following except _______.

A) shipping costs from factory to the port of shipment
B) shipping costs from the shipment port to the destination port
C) insurance coverage for international shipping
D) import duties and fees

Question 38

Which of the following is not a typical feature of franchising?

A) The franchiser grants specified property rights to the franchisee for a fee
B) The franchiser requires the franchisee to follow specified operational rules
C) Franchising offers the franchiser less managerial control than licensing does
D) Franchising is commonly used in service sectors

Question 39

Which of the following is not considered a typical drawback of licensing?

A) Limited control over the licensee
B) Low resource requirement
C) The risk of leaking knowledge
D) Limited revenue from licensing

Question 40

International joint ventures have the following advantages except that __________.

A) the partners share the risks of investment
B) the partners pool complementary resources
C) having a local partner makes it easy to enter a foreign market
D) joint venturing prevents knowledge leaking to local partners

Question 41

One typical challenge to international joint ventures is that:

A) They create excessive overlaps in resources and operations
B) They are harder to set up than wholly owned subsidiaries
C) The partners have conflicting interests
D) The partners share the costs of operations

Question 42

In order to make its joint venture work, a company should do the following except _____.

A) finding a competent and trustworthy partner
B) preparing detailed contracts to define partner responsibilities
C) developing control mechanisms to monitor partner behaviors
D) stressing self-interests of individual partners rather than mutual interests

Question 43

Which of the following is a typical advantage of wholly owned subsidiaries?

A) Strong managerial control
B) Relatively low risks
C) Supported by local partners
D) Favored by local governments

Question 44

Which of the following is a typical drawback of wholly owned subsidiaries?

A) Knowledge leakage
B) High resource commitment
C) Limited control
D) Redundant operations

Question 45

Typically, an entry mode that requires ________ resource commitment will bring ______ control and ______ risks.

A) greater … less … less
B) greater … greater … less
C) greater … less … greater
D) greater … greater … greater

Question 46

A small technology firm intends to explore international markets but lacks financial resources. The company may consider the following entry modes except _____.

A) Wholly owned subsidiary
B) Joint venture
C) Licensing
D) Exporting

Question 47

All other conditions being equal, if a firm intends to have the strongest control over sensitive proprietary technology, which of the following entry modes is the best option?

A) Joint venture
B) Licensing
C) Wholly owned subsidiary
D) Turnkey project

Question 48

The advantages of being an early mover entering into a foreign market include the following except ________.

A) avoiding pioneering costs
B) building sales volume ahead of rivals
C) creating switching costs for customers
D) establishing a strong brand name

Question 49

An early entrant into a new foreign market faces the following disadvantages except ____.

A) uncertainties of the new market
B) unfamiliarity with the new market
C) opportunities to learn from others
D) limited competition

Question 50

The advantages of small-scale entry include the following except _____.

A) limited risks
B) greater flexibility
C) learning from doing
D) market power

Question 51

Which of the following statements is incorrect?

A) An MNC may restructure its global operations through relocation.
B) An MNC may exit a country by selling its business to another party.
C) If needed, an MNC may liquidate its assets in a country.
D) It is viewed as a failure when an MNC exits a country.

Question 52

In comparison to local firms, what extra opportunities, costs and risks do foreign firms need to consider?

Question 53

How can MNCs attain cost reduction through international expansion?

Question 54

Why would MNCs seek local responsiveness in their international expansion?

Question 55

Describe the basic strategy types of international expansion.

Question 56

What are the main entry modes a company can use to enter international markets? How are they different from one another?

Question 57

What factors should a company consider when choosing an entry mode?

Question 58

What are the benefits and drawbacks of being an early entrant into a new foreign market?

Question 59

Compare the pros and cons and large-scale and small-scale entry.