Deck 12: Entering Foreign Markets

Question 1

Turnkey contracts are a means of exporting process technology to other countries.

Answer 1

True
Explanation: Turnkey contracts are a means of exporting process technology to other countries.Turnkey projects are most common in the chemical,pharmaceutical,petroleum refining,and metal refining industries,all of which use complex,expensive production technologies.

Question 2

Large-scale entry allows a firm to learn about a foreign market while limiting the firm's exposure to that market.

Answer 2

False
Explanation: Small-scale entry allows a firm to learn about a foreign market while limiting the firm's exposure to that market.Small-scale entry is a way to gather information about a foreign market before deciding whether to enter on a significant scale and how best to enter.

Question 3

Early entrants can find themselves at a disadvantage if a subsequent change in a foreign country's regulations invalidates prior assumptions about the best business model for operating in that country.
This is a serious risk in many developing nations where the rules that govern business practices are still evolving.

Answer 3

True
Explanation: An early entrant may be put at a severe disadvantage,relative to a later entrant,if regulations change in a way that diminishes the value of an early entrant's investments.

Question 4

Research seems to indicate that the probability of survival of an international business in a new national market sharply decreases if it enters the market after several other foreign firms have already done so.

Question 5

Ease of quality control in far-flung franchises is one of the significant advantages of franchising.

Question 6

In a typical international licensing deal,the licensor puts up most of the capital necessary to get the overseas operation going.

Question 7

A strategic commitment is short-term in nature and fairly easy to reverse.

Question 8

The risk-averse firm that enters a foreign market on a small scale may miss the chance to capture first-mover advantages.

Question 9

The most typical joint venture is a 50/50 venture.

Question 10

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

Question 11

According to Christopher Bartlett and Sumantra Ghoshal,firms from developing countries have little chance of entering into foreign markets in the presence of other established global competitors.

Question 12

Exporting does not help a firm achieve experience curve and location economies.

Question 13

The choice of what foreign markets to enter should be driven by an assessment of a nation's long-run profit potential.

Question 14

Tariff barriers can make exporting uneconomical.

Question 15

There can also be disadvantages associated with entering a foreign market before other international businesses.

Question 16

If the international business can offer a product that has been widely available in that market,the value of that product to consumers is likely to be much greater than if the international business offers a new product that satisfies an unmet need.

Question 17

Franchising is employed primarily by service firms,whereas licensing is pursued primarily by manufacturing firms.

Question 18

Although the markets of some nations are very large when measured by the number of consumers,businesses must also consider standards of living and economic growth when considering them as investment targets.

Question 19

Preemptive advantages are the advantages frequently associated with entering a market early.

Question 20

Under a cross-licensing agreement,a firm might license some valuable intangible property to a foreign partner,but in addition to a royalty payment,the firm might also require that some of the licensee's profits be diverted to support licensees in other countries.

Question 21

When a firm's competitive advantage is based on technological competence,a
50/50 joint venture will often be the preferred entry mode.

Question 22

India and China,while relatively poor,are attractive targets for inward investment primarily because of their:

A)rapid economic growth.
B)political stability.
C)command economies.
D)democratic governments.

Question 23

Indonesia is a populous nation,but is a relatively less attractive option for inward investment because of its:

A)small size in terms of areA.
B)weak economic growth.
C)population density.
D)location.

Question 24

Ultimately,a company must base its choice of nation for foreign expansion on an assessment of the nation's:

A)size in terms of total areA.
B)size in terms of population.
C)long-run profit potential.
D)proximity to sea routes.

Question 25

It is much easier to change the culture of an acquired unit than it is to build an organization culture from scratch.

Question 26

Establishing a wholly owned subsidiary gives the firm a 100 percent share in the profits generated in a foreign market.

Question 27

Research suggests joint ventures with local partners face a significantly higher risk of being subject to nationalization or other forms of adverse government interference.

Question 28

When a firm perceives its technological advantage to be only transitory,when it expects rapid imitation of its core technology by competitors,the firm will invariably want to invest in a wholly owned subsidiary.

Question 29

A joint venture does not give a firm the tight control over subsidiaries that it might need to realize experience curve or location economies.

Question 30

The greater the pressures for cost reductions are,the more likely a firm will want to pursue some combination of exporting and wholly owned subsidiaries.

Question 31

While some markets are very large when measured by number of consumers,_____ must also be considered while choosing a market for entry.

A)density of the population
B)living standards and economic growth
C)the location of the country
D)the total area of the country

Question 32

Greenfield investments are quick to execute.

Question 33

Trade-offs between the advantages and disadvantages of various entry modes are inevitable when selecting an entry mode.

Question 34

Establishing a franchise is generally the most costly method of serving a foreign market from a capital investment standpoint.

Question 35

In a seminal study of the post-acquisition performance of acquired companies,David
Ravenscraft and Mike Scherer concluded that on average the profits and market shares of acquired companies rose dramatically following acquisition.

Question 36

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

Question 37

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

Question 38

Which of the following is NOT a basic decision that a firm contemplating foreign expansion must make?

A)Which markets to enter
B)When to enter new markets
C)How to withdraw from markets
D)Scale of entry into markets

Question 39

Licensing and franchising are two entry modes that are characterized by low development costs and risks for an international firm.

Question 40

A wholly owned subsidiary may be required if a firm is trying to realize location and experience curve economies.

Question 41

Which of the following is one of the factors that determine the value an international business can create in a foreign market?

A)The product's success in the home market
B)The availability of raw material
C)The inflation rates in the country
D)The suitability of its product offering to that market

Question 42

If an international business offers the same type of product that indigenous competitors and other foreign entrants are already offering:

A)the value created by the product is likely to be relatively low.
B)the product will have to be priced relatively high.
C)sales volume will build at a relatively rapid pace.
D)the cost of production will be relatively higher.

Question 43

KFC introduced the Chinese to American-style fast food,but a later entrant,McDonald's,has capitalized on the market in China.This demonstrates how:

A)late-mover disadvantages can sometimes impact early movers too.
B)pioneering costs can accrue to both early and late movers.
C)late-mover costs can create first-mover advantages for a company.
D)late entrants can often reap the benefits of the early entrant's pioneering costs.

Question 44

The greater the value offered by a product to a certain market the:

A)higher the costs of production.
B)more time it will take to build sales volume.
C)higher the prices that can be charged.
D)less suited the product is to that market.

Question 45

A certain liability is associated with being a foreigner,and this liability is greater for foreign firms that:

A)are late entrants to a market.
B)use countertrade agreements.
C)enter a national market early.
D)ride down the experience curve behind their rivals.

Question 46

In which of the following countries is the benefit-cost-risk trade-off likely to be most favorable when considering basic entry decisions?

A)A large country
B)A country with a free market system
C)A country experiencing a dramatic upsurge in inflation rates
D)A highly populated country

Question 47

Which type of costs involves promoting and establishing a product offering,including the costs of educating customers?

A)Trail-blazing costs
B)Pioneering costs
C)Late-mover costs
D)Timing costs

Question 48

The _____ entrant is more likely than the _____ entrant to be able to capture the first-mover advantages associated with demand preemption,scale economies,and switching costs.

A)new;established
B)late;early
C)large scale;small scale
D)foreign;domestic;

Question 49

If an international business offers a product that has not been widely available in that market and that satisfies an unmet need:

A)the value of the product is likely to be relatively high.
B)the product will have to be priced relatively low.
C)sales volume will build only at a slow pace.
D)the product is not suited to that market.

Question 50

Research seems to confirm that the probability of survival of an international business increases if it:

A)is a late entrant to the market.
B)avoids the use of countertrade agreements.
C)enters a national market early.
D)rides down the experience curve ahead of rivals.

Question 51

A strategic commitment:

A)has a short-term impact.
B)is subject to change.
C)has little influence on business decisions.
D)is difficult to reverse.

Question 52

The ability to build sales volume in a country and ride down the experience curve ahead of rivals is an example of:

A)first-mover advantages.
B)pioneering costs.
C)late-entry advantages.
D)second-mover costs.

Question 53

The value an international business can create in a foreign market depends on the suitability of its product offering to that market and the:

A)location of the market.
B)availability of raw material.
C)nature of indigenous competition.
D)inflation rates in the country.

Question 54

Disadvantages associated with entering a foreign market before other international businesses are referred to as _____ disadvantages.

A)first-mover
B)inaugural
C)initial-entrant
D)proactive-mover

Question 55

Which of the following is a first-mover advantage?

A)Ability to create switching costs that tie customers into their products or services
B)Avoiding pioneering costs that a later entrant has to bear
C)Increased probability of surviving in a foreign market
D)Opportunity to observe and learn from the mistakes of other entrants

Question 56

The advantages frequently associated with entering a market early are commonly known as:

A)inaugural advantages.
B)first-mover advantages.
C)initial-entrant premiums.
D)proactive-mover benefits.

Question 57

Which of the following are costs that an early entrant has to bear that a later entrant can avoid?

A)Inaugural costs
B)Early-bird costs
C)Introductory costs
D)Pioneering costs

Question 58

The ability to preempt rivals and capture demand by establishing a strong brand name is an example of:

A)first-mover advantages.
B)pioneering costs.
C)late-entry advantages.
D)second-mover costs.

Question 59

_____ arise when the business system in a foreign country is so different from that in a firm's home market that the enterprise has to devote considerable effort,time,and expense to learning the rules of the game.

A)Time-based costs
B)First-mover advantages
C)Pioneering costs
D)Introductory costs

Question 60

Entering a market on a large scale implies:

A)rapid entry.
B)gradual entry.
C)entering a market late.
D)the use of low amount of resources.

Question 61

Turnkey projects are a means of exporting _____ to other countries.

A)commodities
B)manufacturing goods
C)process technology
D)services

Question 62

Which of the following is a course of action suggested by Christopher Bartlett and Sumantra Ghoshal for firms from developing nations wishing to pursue a strategy of international expansion?

A)Building up financial resources to match those of the largest global competitors
B)Entering the markets simultaneously and on a large scale
C)Enter rapidly and exit at an equally rapid pace
D)Benchmarking and then differentiating themselves from early movers in global markets

Question 63

Which of the following is an advantage of turnkey projects?

A)An ideal way to gain entry into a country where FDI is not limited by government regulations
B)Earning great returns from the technological know-how of running a complex process
C)Establishing a long-term presence in a foreign country
D)Protecting competitive advantage of process technology

Question 64

Significant strategic commitments:

A)should be avoided when considering entry to new markets.
B)rarely translate into action.
C)are neither unambiguously good nor bad.
D)improve the company's strategic flexibility.

Question 65

A project in which a firm agrees to set-up an operating plant for a foreign client and hand over the plant when it is fully operational is referred to as a:

A)merger.
B)turnkey project.
C)franchising project.
D)joint venture.

Question 66

A firm that enters into a(n)_____ will have no long-term interest in the foreign country.

A)joint venture
B)green-field investment
C)acquisition
D)turnkey deal

Question 67

A licensor receives _____ in return for granting the rights to intangible property to the licensee for a specified period.

A)intellectual property
B)interest
C)a fixed fee
D)a royalty fee

Question 68

Your company would like to capitalize on the valuable know-how it possesses in petroleum refining technology.However,the governments of many oil-rich countries have set out to build their own petroleum refining industries and have consequently restricted FDI in their oil and refining sectors.These countries lack petroleum-refining technology,though.Which of the following strategies would enable your company to export its process technology to these oil-rich countries?

A)Joint venture strategy
B)Greenfield investments
C)Mergers and acquisitions
D)Turnkey strategy

Question 69

What type of entry allows a firm to learn about a 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

Question 70

Local agents handling marketing,sales,and service of an exporter may have loyalties to several other companies and may not do as good a job as the firm would if it managed its marketing itself.The company can address this problem by:

A)setting up wholly owned subsidiaries in foreign nations to handle these functions.
B)changing agents frequently.
C)only engaging in turnkey projects.
D)entering into licensing agreements with entities in foreign nations.

Question 71

Which of the following modes of entry into foreign markets can be rendered uneconomical by high tariff barriers?

A)Turnkey contract
B)Licensing
C)Exporting
D)Joint venture

Question 72

Which of the following is a disadvantage of exporting?

A)The firm incurs the costs of establishing manufacturing operations in the host country.
B)It does not give a firm any control over manufacturing,marketing,and strategy.
C)High transport costs can make exporting uneconomical.
D)The firm cannot use countertrading options such as offsets.

Question 73

The lack of commitment associated with _____ may make it more difficult for the low-scale entrant to build market share and to capture first-mover or early-mover advantages.

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

Question 74

The risk-averse firm that enters a foreign market on a small scale:

A)may miss the chance to capture first-mover advantages.
B)will incur high losses.
C)exhibits high levels of commitment.
D)will corner market share and profits.

Question 75

A licensing agreement is an arrangement whereby a licensor grants the rights to _____ to another entity (the licensee)for a specified period.

A)intangible property
B)a manufacturing facility
C)a piece of land
D)the offices of a firm

Question 76

Christopher Bartlett and Sumantra Ghoshal have pointed out the ability that businesses based in developing nations have to enter foreign markets and become global players.Such firms tend to be:

A)unsuccessful in their attempt.
B)late entrants.
C)no threat to other global competitors.
D)far richer in resources than their global competitors.

Question 77

Turnkey projects are a short-term proposition.This can be a disadvantage for the firm if that 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 potential or actual competitors.
B)competing with the client firm in the world market.
C)taking a minority equity interest in the operation.
D)withholding vital process technology from the client company.

Question 78

Which of the following is an advantage of exporting?

A)The firm may realize substantial scale economies from its global sales volume.
B)It allows firms to successfully use localization strategy.
C)The firm is insulated from volatility in foreign exchange rates.
D)The firm is insulated from the threat posed by high tariff rates.

Question 79

According to Christopher Bartlett and Sumantra Ghoshal,what are the prospects for businesses based in developing nations?

A)They tend to be unsuccessful against well-established global competitors.
B)They can succeed against global players by adopting appropriate strategies.
C)They are successful only in the short-term.
D)They tend to be far richer in resources than their global competitors.

Question 80

One of the drawbacks to exporting arises when a firm delegates its marketing,sales,and service in each country where it does business to another company,leading to the risk of:

A)high manufacturing costs.
B)divided loyalties.
C)volatility in exchange rates.
D)regulatory restraints against the practice.