Deck 13: Entry Modes

Question 1

Entering foreign markets may be described by two levels of involvement, nonequity-and equity-based.

Answer 1

True

Question 2

Exporting is an expensive option for testing foreign markets and foreign competition.

Answer 2

False

Question 3

A pioneer will most likely succeed when there are low entry barriers and the firm has sufficient size, resources, and competencies to take advantage of its pioneering position.

Answer 3

False

Question 4

The Internet has made direct exporting much easier.

Question 5

Exports can help to offset cyclical sales in a firm's domestic market.

Question 6

The means of supplying overseas markets-exporting to and production in those markets-depend on nonequity modes of entry.

Question 7

A fundamental drawback of indirect exporting is that companies must pay a commission to all of the companies that handle their exports.

Question 8

Direct exporting is simpler than indirect exporting because it requires neither special expertise nor large cash outlays.

Question 9

Wholesale importers are independent merchants that buy for their own account.

Question 10

Export merchants are exporters that sell for the manufacturer but do not take ownership of the product.

Question 11

Exporting is a way for firms to improve the efficiency of manufacturing equipment.

Question 12

Direct exporting is an excellent means of getting a feel for international business without committing a great amount of human or financial resources.

Question 13

Research shows that surviving pioneers hold a smaller average market share when their industries reach maturity than firms that were either fast followers or late entrants in the product category.

Question 14

Some evidence suggests that pioneers gain and maintain a competitive advantage in new markets.

Question 15

Exporting can extend a product's life cycle by exporting to currently unserved markets where the product will be at the introduction stage of the life cycle.

Question 16

A sales company is established to market goods or services, not to produce them.

Question 17

One benefit of exporting is that it can enable a company to serve markets where the company has no or limited production facilities.

Question 18

A follower will most likely succeed when there are few legal, technological, cultural, or financial barriers to inhibit entry, as long as it has sufficient resources or competencies to overwhelm the pioneer's early advantage.

Question 19

Sales companies will import in their own name from the parent and will invoice in the currency of the parent company.

Question 20

A sales company is part of indirect exporting.

Question 21

When the government of a host country requires companies to have some local participation, foreign firms must engage in strategic alliances with local owners.

Question 22

Trading companies are privately owned firms that develop international trade and serve as intermediaries between foreign buyers and domestic sellers, and vice versa.

Question 23

Producing a factory ready to operate is similar to producing a turnkey project.

Question 24

One way in which contract manufacturing is used is for a company to contract with a local manufacturer to produce products for the company, according to the company's specifications.

Question 25

One way in which contract manufacturing is used is to subcontract assembly work or the production of parts to subsidiaries overseas.

Question 26

Turnkey projects export technology, management expertise, and capital equipment.

Question 27

Lack of control is one of the strongest arguments against a joint venture.

Question 28

Licensing refers to a contractual agreement in which the licensor grants access to its patents, trade secrets, or technology for a fee paid by the licensee.

Question 29

If a firm decides to become involved in overseas manufacturing, it has two options: (1) wholly owned subsidiary and (2) joint venture.

Question 30

Some firms do not grant licenses to other firms because of the fear of having a strong competitor upon the expiration of the license.

Question 31

Historically, firms engaged in FDI have generally preferred wholly owned subsidiaries.

Question 32

The potential of licensing for generating income has been more limited in recent years because courts have not upheld patent infringement claims as much as they used to.

Question 33

A management contract is used only by manufacturing companies to earn income by providing expertise for a fee.

Question 34

It is not possible for foreign investors to control a joint venture if the host country's law prevents foreign investors from having more than 49 percent ownership.

Question 35

Most of the foreign direct investment in the United States has been spent establishing new companies.

Question 36

Licensing is a form of franchising.

Question 37

Piracy is an option for helping a firm to enter new markets.

Question 38

The licensee generally pays a fixed sum when signing a license agreement and then royalties of 5 to 7 percent of sales over the life of the contract.

Question 39

In a joint venture, a management contract is often used as a control mechanism by firms, even if they hold only a minority position in the venture.

Question 40

In the year 2008, twice as much FDI invested in the United States was spent in acquiring established businesses than in setting up new ones.

Question 41

Most firms begin their involvement in overseas business by:

A) exporting.
B) licensing.
C) joint ventures.
D) wholly owned subsidiaries.
E) none of the above.

Question 42

Which of the following are reasons that many firms engage in exporting?

A) Exports can allow the firm to serve markets where it has no or limited production facilities.
B) Exports can offset cyclical sales in the firm's domestic market.
C) Exports can test foreign markets and foreign competition inexpensively.
D) All of the above.
E) Two of A, B, and C.

Question 43

One type of strategic alliance between competitors is an R&D partnership.

Question 44

Pooling alliances are driven by the logic of contributing dissimilar resources, while trading alliances are driven by similarity and integration.

Question 45

Which of the following are reasons that many firms engage in exporting?

A) Exports enable the firm to serve markets where it has sufficient production facilities.
B) Exports can offset cyclical sales in the firm's domestic market.
C) Exports eliminate the risk of losing the firm's technology to potential competitors.
D) All of the above.
E) Two of A, B, and C.

Question 46

A company can engage in indirect exporting by using which of the following companies in its own country?

A) Import merchants
B) Sales companies
C) Export commission agents
D) Overseas merchants
E) Two of the above

Question 47

Trading and pooling alliances are typically different in their goals, optimal structures, and managerial challenges.

Question 48

Generally mergers and acquisitions are considered alliances.

Question 49

In a 12-country study conducted by Ernst & Young, 65 percent of U.S. companies were found to be engaged in a strategic alliance.

Question 50

A pioneering firm stands the best chance for long-term success in market-share leadership and profitability when:

A) there are few cultural barriers to entry.
B) the firm has sufficient size, resources, and competencies.
C) there is high potential for imitation.
D) all of the above.
E) two of A, B, and C.

Question 51

Strategic alliances take many forms, including licensing, mergers, joint ventures, and joint research and development partnerships.

Question 52

__________ permits a firm to set up an export program with a minimum of cash outlay and little special expertise.

A) A joint venture
B) Direct exporting
C) Franchising
D) Indirect exporting
E) Licensing

Question 53

A pioneering firm stands the best chance for long-term success in market-share leadership and profitability when:

A) there are high entry barriers for competitors.
B) it has strong patent protection.
C) there are substantial investment requirements.
D) all of the above.
E) two of A, B, and C.

Question 54

Management contracts can enable the global partner to control many aspects of a joint venture even when holding only a minority position.

Question 55

The existence of two or more partners, which typically have differences in strategies, operating practices, and organizational cultures, is a factor that tends to promote successful management and performance of strategic alliances.

Question 56

A follower firm stands the best chance for success in market-share leadership when:

A) there are high barriers to entry.
B) the firm has small size.
C) there is high potential for imitation.
D) all of the above.
E) two of A, B, and C.

Question 57

Which of the following are reasons that many firms engage in exporting?

A) Exports can allow the firm to meet customer requests for the firm to export.
B) Exports can help a company to remain price competitive in the home market.
C) Exports are the best way for gaining information about foreign markets and competition.
D) All of the above.
E) Two of A, B, and C.

Question 58

Companies wishing to export must first choose between:

A) exporting directly and using sales companies.
B) exporting indirectly and using joint ventures.
C) exporting directly and exporting indirectly.
D) exporting directly and licensing.
E) none of the above.

Question 59

In many cases, a firm entering international markets becomes a follower because:

A) barriers are high for new entrants.
B) strong patent protection exists.
C) quicker competition beats it.
D) all of the above.
E) two of A, B, and C.

Question 60

Alliances can allow a partner to acquire a firm's technological or other competencies, thereby raising important competitive concerns.

Question 61

According to the text, a management contract is useful for:

A) joint ventures.
B) earning money by providing know-how.
C) two of A, B, and
D) As stated directly in the text.
E) all of A, B, and D.

Question 62

A business established for the purpose of marketing goods and services, not producing them, is:

A) a franchisee.
B) a direct exporter.
C) a sales company.
D) a joint venture.
E) two of the above.

Question 63

According to the text, management contracts usually stipulate that a fee of __________ be paid to the firm providing the management expertise.

A) 2 to 5 percent of sales
B) 30 to 50 percent of sales
C) 2 to 5 percent of profits
D) 30 to 50 percent of profits
E) 5 to 7 percent of profits

Question 64

The principal ingredient(s) that a franchiser exports is:

A) a brand name.
B) marketing strategy.
C) a set of proven procedures.
D) two of the above.
E) all of A, B, and C.

Question 65

Licensing provides income for:

A) fashion designers.
B) computer manufacturers.
C) magazine publishers.
D) all of the above.
E) two of A, B, and C.

Question 66

Franchising is a form of:

A) contract management.
B) licensing.
C) contract manufacturing.
D) joint venture.
E) two of the above.

Question 67

By means of a licensing agreement:

A) an international firm receives permission from a foreign government to set up a subsidiary in that country.
B) one firm grants to another the right to use stipulated parts of its expertise.
C) a foreign company receives products made for it by another company.
D) one firm grants to another the right to use all of its expertise.
E) two of the above.

Question 68

A turnkey project includes all of the following except:

A) plan design.
B) technology supply.
C) supply of raw material.
D) personnel training.
E) none of the above. (All four are included.)

Question 69

According to the text, licensing agreements usually stipulate that a royalty of __________ be paid to the licensor.

A) 2 to 5 percent of profits
B) 2 to 5 percent of sales
C) 5 to 7 percent of profits
D) 5 to 7 percent of sales
E) none of the above

Question 70

Which of the following was stated in the text as being a concern with licensing?

A) It requires the licensor to invest scarce funds in the licensee's company.
B) It can create a competitor.
C) License terms are often not upheld by the courts.
D) All of the above.
E) two of A, B, and C.

Question 71

An arrangement by which one firm provides management in all or specific areas to another firm is:

A) a license.
B) a franchise.
C) a management contract.
D) all of the above.
E) two of A, B, and C.

Question 72

McDonald's, Kentucky Fried Chicken, and Subway are examples of:

A) joint ventures.
B) licensing.
C) franchising.
D) strategic alliances.
E) none of the above.

Question 73

When a licensing agreement is made:

A) the licensee receives expertise from another company.
B) the licensee obtains permission from the government to do business in a foreign country.
C) the licensor is a foreign government which grants the license.
D) the licensor pays to receive assistance from the licensee.
E) two of the above.

Question 74

An arrangement in which one firm contracts with another firm to produce products to its specifications but assumes responsibility for marketing is:

A) a license.
B) a franchise.
C) a management contract.
D) contract manufacturing.
E) a turnkey project.

Question 75

The disadvantages of indirect exporting include:

A) firms gain little experience from the transaction.
B) commissions have to be paid to agents.
C) firms are dependent on the agents.
D) all of the above.
E) two of A, B, and C.

Question 76

A contractual arrangement in which one firm grants access to its patents, trade secrets, or technology to another for a fee is:

A) an exporter.
B) a sales company.
C) a management contract.
D) a joint venture.
E) none of the above.

Question 77

A company can engage in indirect exporting by using which of the following companies in its own country?

A) Manufacturers' export agents
B) Export merchants
C) Sales offices
D) All of the above
E) Two of A, B, and C

Question 78

Hilton and Delta provide assistance to other international companies. That is an example of:

A) a joint venture.
B) a management contract.
C) a strategic alliance.
D) contract manufacturing.
E) licensing.

Question 79

The disadvantages of indirect exporting include:

A) foreign business can be lost if the exporter changes supply sources.
B) no expertise or large cash outlays are required.
C) the firm gains little experience from transactions.
D) two of the above.
E) all of A, B, and C.

Question 80

Exporters of a turnkey project may include which of the following?

A) A contractor that specializes in designing and erecting plants in a particular industry
B) A producer of a factory
C) A sales company
D) All of the above
E) Two of A, B, and C