Deck 13: Selecting and Managing Entry Modes

Question 1

Countertrade provides a way for firms to trade either by using a small amount of hard currency or even none at all.

Answer 1

True

Question 2

Advance payment made by an importer to an exporter normally takes the form of a sight draft.

Answer 2

False

Question 3

Typically,indirect exporting relies on local sales representatives or distributors.

Answer 3

False

Question 4

Franchising is primarily used in the manufacturing industries.

Question 5

Cross licensing occurs when companies use licensing agreements to swap intangible property with one another.

Question 6

Switch trading is the export of industrial equipment in return for products produced by that equipment.

Question 7

Countertrade is not an option for smaller companies because of the cash outlays involved.

Question 8

Advance payment is the least favorable method of payment collection for exporters.

Question 9

Matching market needs to the company's abilities is the first step in developing a successful export strategy.

Question 10

Direct exporters always sell directly to end users.

Question 11

Using a distributor increases an exporter's risk.

Question 12

The most common method used for buying and selling goods internationally is licensing.

Question 13

A sight draft extends the period of time following delivery by which the importer must pay for goods.

Question 14

Companies can achieve economies of scale by expanding into international markets.

Question 15

Agency relationships are popular among exporters because they are easy to terminate should difficulties arise.

Question 16

Letters of credit are popular among traders because banks assume most of the risks.

Question 17

The open account method of export/import financing is used when the two parties are unfamiliar with each other.

Question 18

Most large companies use exporting as a means of expanding total sales when the domestic market has become saturated.

Question 19

A confirmed letter of credit is guaranteed by both the exporter's bank in the country of export and the importer's bank in the country of import.

Question 20

The brand name or trademark of a company is normally the single most important item desired by a franchisee.

Question 21

Which of the following steps of the strategy development process for exports involves performing market research and interpreting results obtained from the research?

A)identification of a potential market
B)match needs of the market to the company's abilities
C)initiation of meetings
D)commitment of resources

Question 22

The most important disadvantage of a strategic alliance is that it can create a future local or even global competitor.

Question 23

Which of the following refers to the exchange of goods or services directly for other goods or services without the use of money?

A)offset
B)barter
C)counterpurchase
D)switch trading

Question 24

Which of the following occurs when a company sells its products to intermediaries who then resell to buyers in a target market?

A)indirect exporting
B)counterpurchase
C)an acquisition
D)a joint venture

Question 25

Companies involved in direct exporting typically rely on ________.

A)distributors
B)agents
C)export management companies
D)export trading companies

Question 26

Which of the following is true of distributors?

A)The use of distributors increases the exporter's control over the price buyers are charged.
B)They are compensated with a fixed salary plus commissions based on the value of their sales.
C)They are seldom required to take ownership of the merchandise when it enters their country.
D)They can stunt the growth of the exporter's market share by charging very high prices.

Question 27

Which of the following is the most common method of buying and selling goods internationally?

A)exporting and importing
B)countertrade
C)a turnkey project
D)A merger or an acquisition

Question 28

A(n)________ exports products on behalf of an indirect exporter.

A)local distributor
B)subsidiary
C)sales representative
D)export management company

Question 29

Which of the following occurs when a company sells its products to buyers in a target market without going through intermediary companies?

A)export through local distributors
B)export through agents
C)sale through export management companies
D)sale through export trading companies

Question 30

Which of the following allows a country to earn back some of the currency it pays out for imports?

A)switch trading
B)counterpurchase
C)buyback
D)barter

Question 31

The biggest advantage of an export management company is usually its ________.

A)knowledge of the target market's cultural,political,legal,and economic conditions
B)well-developed and extensive distribution channels and storage facilities
C)well-rounded experience in countertrade-related activities
D)financial understanding of investment projects and its manufacturing expertise

Question 32

Under a turnkey project,one company supplies another with managerial expertise for a specific period of time.

Question 33

________ take ownership of the merchandise when it enters their country and accept all the risks associated with generating local sales.

A)Agents
B)Distributors
C)Sales representatives
D)Freight forwarders

Question 34

Products for which there are fewer substitutes can more easily absorb higher shipping and production costs.

Question 35

Low tariffs and high quota limits encourage market entry by means of investment.

Question 36

In a backward integration joint venture,the parties choose to invest together in downstream business activities.

Question 37

Selling goods or services that are paid for,in whole or part,with other goods or services is called ________.

A)indirect exporting
B)countertrade
C)licensing
D)a joint venture

Question 38

Which of the following steps of the strategy development process for exports involves establishing relationships with potential local distributors?

A)identification of a potential market
B)match market needs to the company's abilities
C)initiation of meetings
D)commitment of resources

Question 39

Which of the following is the first step in developing a successful export strategy?

A)identification of a potential market
B)match market needs to the company's abilities
C)initiation of meetings
D)commitment of resources

Question 40

The primary advantage of franchising is that franchisees have a great degree of organizational flexibility.

Question 41

Which of the following financing methods entails the greatest risk for exporters?

A)supersedeas bond
B)advance payment
C)letter of credit
D)open account

Question 42

A document ordering the importer to pay the exporter a specified sum of money at a specified time is called a ________.

A)bill of lading
B)letter of credit
C)bill of exchange
D)management contract

Question 43

________ is a countertrade whereby one company sells to another its obligation to make a purchase in a given country.

A)Franchising
B)Joint venture
C)Switch trading
D)Barter

Question 44

Export/import financing in which a bank acts as an intermediary without accepting financial risk is called ________.

A)documentary collection
B)counterpurchase
C)buyback
D)open account

Question 45

A form of countertrade that usually typifies long-term relationships between the companies involved is called ________.

A)barter
B)franchising
C)offset
D)buyback

Question 46

A(n)________ becomes a negotiable instrument that can be traded among financial institutions when inscribed "accepted" by an importer.

A)sight draft
B)ocean bill of lading
C)time draft
D)inland bill of lading

Question 47

Which of the following financing methods entails the greatest risk for importers?

A)documentary collection
B)advance payment
C)letter of credit
D)open account

Question 48

Which of the following is a method of export/import financing in which the importer's bank issues a document stating that the bank will pay the exporter when the exporter fulfills the terms of the document?

A)sight draft
B)bill of lading
C)letter of credit
D)bill of exchange

Question 49

Which of the following normally takes the form of a wire transfer of money from the bank account of the importer directly to that of the exporter prior to shipment of merchandise?

A)documentary collection
B)letter of credit
C)advance payment
D)open account

Question 50

Which of the following is the oldest known form of countertrade?

A)counterpurchase
B)switch trading
C)offset
D)barter

Question 51

Which of the following is a method of export/import financing?

A)offset
B)buyback
C)switch trading
D)documentary collection

Question 52

Which of the following statements is true of countertrade?

A)Countertrade is practiced by countries when there is a lack of hard currency.
B)Countertrade involves products whose prices on world markets tend to remain steady.
C)Countertrade usually involves industrial products and computer softwares.
D)Hedging risk in countertrade is prohibited.

Question 53

The sale of goods and services to a country by a company that promises to buy a specific product from that country in the future is called a(n)________.

A)counterpurchase
B)offset
C)joint venture
D)barter

Question 54

Advance payment is commonly used for export/import financing when ________.

A)two parties are unfamiliar with each other
B)the buyer has obtained credit for the transaction
C)the transaction is for a relatively high amount
D)the buyer has good credit rating at banks

Question 55

An offset agreement differs from a counterpurchase agreement in that an offset agreement ________.

A)fails to specify the type of product that must be purchased
B)fails to specify the amount that will be spent on the purchase
C)fails to give a business greater freedom in fulfilling its end of a countertrade deal
D)fails to make a hard-currency purchase of any product from that nation in the future

Question 56

Which of the following refers to a contract between the exporter and shipper that specifies merchandise destination and shipping costs?

A)sight draft
B)bill of lading
C)letter of credit
D)bill of exchange

Question 57

________ is a payment method commonly used when there is an ongoing relationship between the involved parties.

A)Advance payment
B)Documentary collection
C)Letter of credit
D)Open account

Question 58

Which of the following requires an importer to pay for the imported goods when they are delivered?

A)sight draft
B)inland bill of lading
C)air way bill of lading
D)time draft

Question 59

Buyback is defined as ________.

A)the export of industrial equipment in return for products produced by that equipment
B)an agreement that a company will offset a hard-currency sale to a nation by making a hard-currency purchase of an unspecified product from that nation in the future
C)the sale of goods or services to a country by a company that promises to make a future purchase of a specific product from that country
D)the exchange of goods or services for a certain amount of money

Question 60

A company proposes that in exchange for a hard-currency sale,it will make a hard-currency purchase of an unspecified product from the buyer nation in the future.Which of the following is the company proposing?

A)a counterpurchase
B)an offset
C)a buyback
D)a barter

Question 61

A ________ is a separate company created and owned by two or more independent entities to achieve a common business objective.

A)wholly owned subsidiary
B)joint venture
C)strategic alliance
D)turnkey project

Question 62

Which of the following types of joint ventures involve parties investing together in downstream business activities?

A)backward integration
B)forward integration
C)multistage
D)buyback

Question 63

Which of the following statements is true of the strategic factors that influence a company's international entry mode selection?

A)Low tariffs and high quota limits encourage market entry by means of investment.
B)Companies that produce goods with high shipping costs prefer exporting.
C)Companies set up production units in a host market if the total cost of production is lower in the home market.
D)Markets that are likely to remain relatively small consider exporting as a viable option.

Question 64

A(n)________ is guaranteed by both the exporter's bank in the country of export and the importer's bank in the country of import.

A)confirmed letter of credit
B)transferrable letter of credit
C)revocable letter of credit
D)irrevocable letter of credit

Question 65

Which of the following is a contractual entry mode in which one company supplies another with intangible property and other assistance over an extended period?

A)franchising
B)management contract
C)licensing
D)strategic alliance

Question 66

A(n)________ allows the bank to modify the terms of the letter only after obtaining the approval of both exporter and importer.

A)bill of exchange
B)bill of lading
C)confirmed letter of credit
D)irrevocable letter of credit

Question 67

Which of the following is a disadvantage of strategic alliances?

A)They are the most expensive among the investment entry modes.
B)They increase the likelihood that one partner will try to take advantage of the other.
C)They create future competitors.
D)They fail to tap into their competitors' specific strengths.

Question 68

Which of the following is a strategic factor that influences a company's international entry mode selection?

A)market consumption capacity
B)market receptivity
C)market size
D)market intensity

Question 69

Which of the following is a contractual entry mode in which a company owning intangible property grants another firm the right to use that property for a specified period of time?

A)franchising
B)licensing
C)management contract
D)strategic alliance

Question 70

Which of the following statements best differentiates between franchising and licensing?

A)Licensing gives a company greater control than franchising over the sale of its product in a target market.
B)Franchising is common in manufacturing industries while licensing is primarily used in service industries.
C)Franchising requires ongoing assistance from the franchiser while licensing normally involves a one-time transfer of property.
D)Licensees must often meet strict guidelines on product quality,day-to-day management duties,and marketing promotions unlike franchisees.

Question 71

Export/import financing in which an exporter ships merchandise and later bills the importer for its value is called ________.

A)advance payment
B)open account
C)a letter of credit
D)documentary collection

Question 72

A ________ joint venture is formed when each partner requires the same component in its production process.

A)backward
B)multistage
C)forward
D)buyback

Question 73

Which of the following letters of credit can be modified without obtaining approval from either the exporter or the importer,by the bank issuing the letter of credit?

A)revocable letter of credit
B)confirmed letter of credit
C)at sight letter of credit
D)usance letter of credit

Question 74

Scenario: Owen's HomeCare Products
Owen McCain,owner of Owen's HomeCare Products,is considering going international.He feels that the products he manufactures will be well-received,especially in developing countries.He wants to understand the exporting process and then scale his exporting activities accordingly.
Through his research,Owen learns that the first step in developing a successful export strategy is ________.

A)initiation of meetings with intermediaries
B)identification of a potential market
C)commitment of resources
D)matching of market needs to company abilities

Question 75

Which of the following is an investment entry mode?

A)licensing
B)franchising
C)joint venture
D)turnkey project

Question 76

Which of the following is a contractual entry mode?

A)wholly owned subsidies
B)turnkey projects
C)joint ventures
D)strategic alliances

Question 77

Letters of credit are popular among traders because most of the risks are assumed by ________.

A)distributors
B)importers
C)exporters
D)banks

Question 78

When one company is hired to design,construct,and test a production facility for a client,the arrangement is called ________.

A)a turnkey project
B)licensing
C)a joint venture
D)franchising

Question 79

Which of the following statements is true of licensing?

A)Licensing restricts finances needed for international expansion.
B)Cross licensing grants a company the right to use a property but does not grant it sole access to a market.
C)A major advantage of licensing is that it is the least risky method of international expansion.
D)Licensing increases the likelihood that a licensor's product will appear on the black market.

Question 80

Which of the following is an advantage of wholly owned subsidiaries?

A)The parent company receives all profits generated by the subsidiary.
B)They are the least expensive investment entry modes.
C)They help in the sharing of the cost of an international investment project.
D)They are the least risky when compared to other investment entry modes.