Deck 15: Entry Strategy and Strategic Alliances

Question 1

In a turnkey project,the contractor agrees to handle every detail of the project for a foreign client.

Answer 1

True

Question 2

Licensing limits the firm's ability to realize experience curve and location economies by producing its product in a centralized location.

Answer 2

True

Question 3

Tangible property includes patents,designs,copyrights,and trademarks.

Answer 3

False

Question 4

The costs and risks associated with doing business in a foreign country are typically high in an economically advanced and politically stable democratic nation.

Question 5

The value an international business creates in a foreign market depends on the suitability of its product offering to that market and the nature of indigenous competition.

Question 6

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

Question 7

Costs that an early entrant has to bear that a later entrant can avoid are known as first-mover costs.

Question 8

The choice of which markets to enter should be driven by an assessment of relative long-run growth and profit potential.

Question 9

McDonald's is an example of a firm that uses a franchising strategy.

Question 10

Exporting is advantageous because it avoids the cost of establishing manufacturing operations in the host country and because it may help a firm achieve experience curve and location economies.

Question 11

Educating customers is a part of pioneering costs.

Question 12

A strategic commitment can be reversed by the top management according to their convenience.

Question 13

A small-scale entrant is more likely than a large-scale entrant to capture first-mover advantages associated with demand preemption,scale economies,and switching costs.

Question 14

By its very nature,licensing increases a firm's ability to utilize a coordinated strategy.

Question 15

The attractiveness of a country as a potential market for an international business depends on balancing the benefits,costs,and risks associated with doing business in that country.

Question 16

An advantage of turnkey projects is that the firm that enters into a turnkey deal will have no long-term interest in the foreign country.

Question 17

First-mover advantages are the advantages associated with entering a market early.

Question 18

Exporting is most appropriate when lower-cost locations for manufacturing the product can be found abroad.

Question 19

Large strategic commitments increase strategic flexibility.

Question 20

Franchising enables a firm to quickly build a global presence.

Question 21

The most typical joint venture is a 25/75 venture.

Question 22

An advantage of joint ventures with a local partner is the knowledge of the local environment that the local partner contributes to the venture.

Question 23

Firms pursuing global standardization or transnational strategies tend to prefer joint-venture arrangements over wholly owned subsidiaries.

Question 24

To maximize the learning benefits of an alliance,a firm must try to learn from its partner and then apply the knowledge within its own organization.

Question 25

An alliance is a way to bring together complementary skills and assets that neither company could easily develop on its own.

Question 26

Overpayment for assets of an acquired firm is one reason acquisitions fail.

Question 27

Relational capital refers to the building of interpersonal relationships between the firms' managers in a strategic alliance.

Question 28

A joint venture is often politically more acceptable than a wholly owned subsidiary and brings a degree of local knowledge to the subsidiary.

Question 29

The main advantage of greenfield investment is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants.

Question 30

Acquisitions rarely produce disappointing results.

Question 31

If a firm is trying to enter a market where there are already well-established companies,and where global competitors are also interested in establishing a presence,the firm should choose a greenfield investment.

Question 32

Firms entering a market via a wholly owned subsidiary must bear all the costs and risks associated with the venture.

Question 33

A wholly owned subsidiary limits a firm's control over operations in different countries.

Question 34

Acquisitions are quick to execute.

Question 35

A good ally will expropriate the firm's technological know-how while giving away little in return.

Question 36

Brand names are generally well-protected by international laws pertaining to trademarks.

Question 37

Contractual safeguards cannot be written into an alliance agreement to guard against the risk of opportunism by a partner.

Question 38

Unlike joint ventures,strategic alliances require the firm to bear all the costs and risks of foreign expansion.

Question 39

Cross-licensing agreements can be used to formalize arrangements to swap skills and technology in a strategic alliance.

Question 40

Greenfield ventures are less risky than acquisitions in the sense that there is less potential for unpleasant surprises.

Question 41

A large-scale entrant is more likely than a small-scale entrant to be able to capture first-mover advantages associated with _____.

A) scale economies
B) diseconomies of scale
C) pioneering costs
D) diseconomies of scope

Question 42

Which of the following is a distinct advantage of exporting?

A) It avoids the threat of tariff barriers by the host-country government.
B) Firms benefit from a local partner's knowledge of the host country's competitive conditions.
C) It avoids the often substantial costs of establishing manufacturing operations in the host country.
D) It is appropriate if lower cost locations for manufacturing the product can be found abroad.

Question 43

An arrangement whereby a firm grants the right of intangible property to another entity for a specified time period in exchange for royalties is a(n)_____ agreement.

A) turnkey
B) licensing
C) greenfield
D) acquisition

Question 44

Which of the following is a disadvantage of licensing?

A) It does not help firms that lack capital to develop operations overseas.
B) It does not give a firm the tight control over strategy that is required for realizing experience curve and location economies.
C) It cannot be used when a firm possesses some intangible property that might have business applications.
D) The firm has to bear the development costs and risks associated with opening a foreign market.

Question 45

Which of the following statements about small-scale entry is true?

A) The commitment associated with a small-scale entry makes it possible for the small-scale entrant to capture first-mover advantages.
B) Small-scale entry is a way to gather information about a foreign market before deciding whether to enter on a significant scale.
C) By giving a firm time to collect information,small-scale entry increases the risks associated with a subsequent large-scale entry.
D) Small-scale entry limits a firm's ability to learn about a foreign market thereby also limiting the firm's exposure to that market.

Question 46

If a firm can realize location economies by moving production elsewhere,it should avoid:

A) exporting.
B) turnkey contracts.
C) licensing.
D) wholly owned subsidiaries.

Question 47

Which of the following statements is true of turnkey projects?

A) Turnkey projects are most common in industries which use simple,inexpensive production technologies.
B) A turnkey strategy can be more risky than conventional FDI.
C) A turnkey strategy is particularly useful where FDI is limited by host-government regulations.
D) Firms that enter into a turnkey deal have a long-term interest in the foreign country.

Question 48

Early entrants to a market that are able to create switching costs that tie the customer to the product are capitalizing on ______.

A) first-mover advantages
B) pioneering costs
C) economies of scale
D) late-mover advantages

Question 49

Switching costs:

A) drive early entrants out of the market.
B) make it easy for later entrants to win business.
C) make it difficult for later entrants to win business.
D) give later entrants a cost advantage over early entrants.

Question 50

Under a(n)_____ agreement,a firm might license some valuable intangible property to a foreign partner,but in addition to a royalty payment,the firm might also request that the foreign partner license some of its valuable know-how to the firm.

A) integrated licensing
B) chartering
C) franchising
D) cross-licensing

Question 51

Many American firms that sold oil-refining technology to firms in the Gulf now find themselves competing with these firms in the world oil market.This is an example of:

A) a firm entering into a turnkey project with a foreign enterprise,inadvertently creating a competitor.
B) a firm entering into a turnkey deal having no long-term interest in the foreign country.
C) a country subsequently proving to be a major market for the output of the process that has been exported.
D) a firm selling its process technology through franchisees in different countries.

Question 52

When an exporting firm finds that its local agent is also carrying competitors' products,the firm may switch to a _____ to handle local marketing,sales,and service.

A) wholly owned subsidiary
B) franchising arrangement
C) turnkey operation
D) licensing agreement

Question 53

Other things being equal,the benefit-cost-risk trade-off is likely to be most favorable in:

A) politically unstable developing nations that operate with a mixed or command economy.
B) nations where there is a dramatic upsurge in either inflation rates or private-sector debt.
C) politically stable developed and developing nations that have free market systems.
D) developing nations where speculative financial bubbles have led to excess borrowing.

Question 54

Which of the following is a first-mover advantage?

A) lower research and development costs and marketing costs than other firms
B) ability to preempt rivals and capture demand by establishing a strong brand name
C) ability to capitalize on the work done by other firms
D) creation of innovative products at lower costs than other firms

Question 55

What is the primary advantage of licensing?

A) It helps a firm avoid the development costs associated with opening a foreign market.
B) It gives a firm the tight control over manufacturing,marketing,and strategy.
C) It helps a firm achieve experience curve and location economies.
D) It increases a firm's ability to utilize a coordinated strategy.

Question 56

Cross-licensing agreements are increasingly common in the _____ industries.

A) transportation
B) high-technology
C) construction
D) consumer durables

Question 57

The costs of promoting and establishing a product offering when a firm enters a foreign market prior to its rivals are known as _____.

A) switching costs
B) market development costs
C) pioneering costs
D) promotional development costs

Question 58

In _____,the contractor agrees to handle every detail of the project for a foreign client,including the training of operating personnel.

A) exporting
B) licensing
C) franchising
D) turnkey projects

Question 59

Turnkey projects are most common in which of the following industries?

A) fresh fruit,grain,and meat products
B) chemical,pharmaceutical,and metal refining
C) consumer durables,computer peripherals,and automotive parts
D) apparel,shoes,and leather products

Question 60

Patents,inventions,formulas,processes,designs,copyrights,and trademarks are all forms of _____.

A) licensing agreements
B) franchising agreements
C) intangible property
D) tangible property

Question 61

Which of the following is true of wholly owned subsidiaries?

A) It is the least expensive method of serving a foreign market from a capital investment standpoint.
B) It the most feasible entry mode due to the political considerations.
C) It is required if a firm is trying to realize location and experience curve economies.
D) It is particularly useful where FDI is limited by host-government regulations.

Question 62

Which of the following is an advantage of establishing a joint venture?

A) Joint ventures with local partners do not face any risk of being subject to nationalization or other forms of adverse government interference.
B) Joint ventures give a firm a tight control over subsidiaries that it might need to realize experience curve or location economies.
C) When the development costs and/or risks of opening a foreign market are high,a firm might gain by sharing these costs and or risks with a local partner.
D) The firm is deprived of the knowledge of the host country's competitive conditions,culture,language,etc.

Question 63

A firm can establish a wholly owned subsidiary in a country by building a subsidiary from the ground up,called the _____.

A) joint venture
B) turnkey strategy
C) licensing agreement
D) greenfield strategy

Question 64

A wholly owned subsidiary is appropriate when:

A) the firm wants to share the cost and risk of developing a foreign market.
B) the firm wants 100 percent of the profits generated in a foreign market.
C) the firm wants a plant that is ready to operate.
D) the firm wants to test a market.

Question 65

Which of the following statements about franchising is true?

A) It guarantees consistent product quality.
B) It tends to involve more short-term commitments than licensing.
C) It is a specialized form of licensing.
D) It is employed primarily by manufacturing firms.

Question 66

The valuable asset of firms,whose competitive advantage is based on management know-how,is their _____.

A) top management staff
B) USP
C) advertisements
D) brand name

Question 67

Most service firms have found that _____ with local partners work best for controlling subsidiaries.

A) joint ventures
B) licensing agreements
C) greenfield investments
D) turnkey projects

Question 68

If a high-tech firm sets up operations in a foreign country to profit from a core competency in technological know-how,which of the following entry strategy is best?

A) joint ventures
B) licensing
C) wholly owned subsidiaries
D) turnkey contacts

Question 69

To increase the potential for a successful acquisition,a firm should:

A) always bid low to allow for partial failure.
B) try to acquire a firm with a very different corporate culture so there is no forced "overlap."
C) screen the foreign enterprise to be acquired.
D) seek companies only from similar national cultures.

Question 70

The most typical joint venture is a _____ venture.

A) 50/50
B) 60/40
C) 75/25
D) 10/90

Question 71

If a firm's core competency is based on control over proprietary technological know-how,_____ and _____ arrangements should be avoided if possible to minimize the risk of losing control over that technology.

A) licensing; joint-venture
B) wholly owned subsidiary; exporting
C) turnkey contracts; exporting
D) exporting; joint-venture

Question 72

_____ is pursued primarily by manufacturing firms and _____ is employed primarily by service firms.

A) Licensing; franchising
B) Franchising; licensing
C) Franchising; exporting
D) Exporting; licensing

Question 73

Which of the following is true of acquisitions?

A) It is a time-consuming process and takes a lot of time to execute.
B) They are less risky than greenfield ventures in the sense that there is less potential for unpleasant surprises.
C) They give the firm a much greater ability to build the kind of subsidiary company that it wants.
D) In many cases,firms make acquisitions to preempt their competitors.

Question 74

According to the _____,top managers typically overestimate their ability to create value from an acquisition.

A) misvaluation theory
B) performance extrapolation hypothesis
C) market timing theory
D) hubris hypothesis

Question 75

_____ refer to cooperative agreements between potential or actual competitors.

A) Greenfield investments
B) Strategic alliances
C) Takeovers
D) Licensing agreements

Question 76

Firms engaging in a _____ with a local company can benefit from a local partner's knowledge of the host country's competitive conditions,culture,language,political systems,and business systems.

A) turnkey project
B) joint venture
C) greenfield investment
D) licensing arrangement

Question 77

Firms entering markets where there are no incumbent competitors to be acquired should choose:

A) greenfield investments.
B) joint ventures.
C) acquisitions.
D) takeovers.

Question 78

Which of the following is an advantage of franchising?

A) A firm takes profits out of one country to support competitive attacks in another.
B) A firm is relieved of many of the costs and risks of opening a foreign market on its own.
C) It guarantees consistent product quality and achieves experience curve and location economies.
D) It improves the firm's ability to take profits out of one country to support competitive attacks in another.

Question 79

In a _____,the firm owns 100 percent of the stock.

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

Question 80

If a service firm wants to build a global presence quickly and at a relatively low cost and risk,it must employ _____.

A) chartering
B) exporting
C) a turnkey strategy
D) franchising