Question 1

Strategic alliances differ from joint ventures in one major characteristic: they involve non-equity arrangements, meaning that strategic alliances do not involve the creation of a separate entity with joint ownership.

Accepted Answer

Strategic alliances involve non-equity arrangements and do not involve the creation of a separate entity with joint ownership, whereas joint ventures do involve the creation of a separate entity with joint ownership.

Question 2

Mexico consistently has been the world's largest recipient of FDI capital in the world averaging some $200 billion a year in net FDI inflows since 2005. Mexico has been made more globally competitive as a consequence of such FDI flows.

Accepted Answer

While Mexico has received significant foreign direct investment (FDI), it has not been the world's largest recipient, nor has it averaged $200 billion a year in net FDI inflows since 2005. The United States and China have been among the top recipients of FDI globally.

Question 3

A fundamental consideration that must be made in business is the risk-return trade-off. In general, the greater the risk (loss of capital invested)entrepreneurs are willing to take, the greater the rewards (profit)they are likely to reap.

Accepted Answer

This statement is true. The risk-return trade-off is a principle that states that greater rewards come with greater risk. Therefore, entrepreneurs who are willing to take more risks may potentially reap larger profits than those who are more risk-averse.

Question 4

According to the text, which of the following entry strategies has the highest degree of risk?

Accepted Answer

Wholly-owned foreign subsidiary has the highest degree of risk as it involves a significant investment and full responsibility for operations in the foreign market. It also requires a deep understanding of local laws and regulations, cultural differences, and market conditions. The level of investment and ownership also means that any failure or mistake could result in significant losses for the company.

Question 5

Around _____ percent of international trade is conducted by small business.

Accepted Answer

According to the International Chamber of Commerce, around 20 percent of international trade is conducted by small businesses.

Question 6

A major reason why growth-oriented MNEs establish operations abroad is to diversify and minimize risk so that overall corporate cash flows and earnings will be relatively stable.

Accepted Answer

Establishing operations abroad allows MNEs to access new markets and spread their operations across different countries, reducing their dependence on a single market and minimizing risk. This can lead to greater stability in cash flows and earnings for the MNE as a whole.

Question 7

According to the text, wholly-owned foreign subsidiary businesses have_____ risk and _____ return.

Accepted Answer

Wholly-owned foreign subsidiaries typically involve high risk due to factors like political instability and market unfamiliarity, but they also offer the potential for high returns due to full control over operations and profits.

Question 8

When Coca-Cola acquired major assets of Parle Exports in India, it instantly received access to Parle's huge national bottling and distribution network. This is an example of international joint venture in global markets.

Accepted Answer

This is not an example of an international joint venture. It is an example of an acquisition by Coca-Cola.

Question 9

Subsidiaries require major marketing efforts to penetrate the international market because of cultural differences and because the entrant is new and relatively unknown.

Accepted Answer

Subsidiaries of companies entering international markets often face significant challenges in overcoming cultural differences and establishing their brand in a new market. This requires a major marketing effort to build awareness and trust among potential customers.

Question 10

When MNEs go abroad, they generally do so for two major reasons. There could be massive competition in the home market or firms may genuinely identify new business opportunities abroad based upon the company's competitive advantage in production, technology and management.

Accepted Answer

When MNEs go abroad, it is generally because of either intense competition in the home market or to tap into new business opportunities offered by the company's competitive advantage in production, technology, and management.

Question 11

General Electric (United States), Sony (Japan), BMW (Germany), and Petrobras (Brazil)are just a few of the hundreds examples of large MNEs.

Accepted Answer

The statement is true as General Electric, Sony, BMW, and Petrobras are all examples of large multinational enterprises (MNEs) that operate in different countries around the world.

Question 12

Trade barriers lead to decreased competition from abroad, and raise prices and profits of domestic firms. Interestingly, such protection over time will often lead to higher-quality domestic products and services.

Accepted Answer

Trade barriers limit competition, which can prevent domestic firms from improving their products and services to meet international standards. As a result, protectionism may lead to a lack of innovation, decreased efficiency, and higher prices for consumers.

Question 13

Interestingly, licensing and franchising typically leads to the penetration of international markets without significant capital investment abroad by the parent company.

Accepted Answer

Licensing and franchising allow a company to expand into international markets by granting the rights to use their brand or products without the need for significant capital investment abroad.

Question 14

Of the following, which is NOT true about the export-import business?

Accepted Answer

While some export-import businesses may have many employees, it is not a requirement for the operation to be successful. Smaller operations can still be profitable with only a handful of employees.

Question 15

In a free enterprise system, the overriding objective of firms wanting to invest abroad is to funnel the proceeds to a central government.

Accepted Answer

In a free enterprise system, the overriding objective of firms wanting to invest abroad is to maximize their profits and expand their business. They may also aim to gain access to new markets, resources, and talent. The proceeds generated from the investments are primarily used to support the firm's growth and development, rather than to fund a central government.

Question 16

According to the text, which of the following entry strategies has the lowest degree of risk?

Accepted Answer

Licensing involves allowing another company to use your intellectual property such as patents, trademarks or technology in exchange for royalty payments or other forms of compensation. This option requires low investment and risk as the licensee is responsible for production and marketing, while the licensor benefits from the use of their technology, without committing significant resources. Therefore, licensing is considered the lowest degree of risk among all entry strategies listed.

Question 17

Chaebols, the South Korean conglomerates discussed in the textbook, are examples of socially responsible and transparent companies.

Accepted Answer

The statement is false. While chaebols have contributed to the South Korean economy, they have also been criticized for their lack of transparency and social responsibility, including issues such as labor exploitation and monopolistic practices.

Question 18

When it comes to franchising, the parent company's objective is to make sure that when a customer visits its franchisee in any country, the quality of products and services provided are as different and unique in every store.

Accepted Answer

The parent company's objective in franchising is to ensure consistency in the quality of products and services across all franchise locations, not to make them different and unique.

Question 19

While economic growth rates in stable economies may be high compared with emerging-market economies like BRIC, their high per-capita-income levels translate to poor levels of consumption that could prove to be an unstable source of revenue and profits for MNEs wanting to enter these markets.

Accepted Answer

The statement presents a contradictory statement. Economic growth rates in stable economies may not necessarily be high compared to emerging-market economies like BRIC. Moreover, high per-capita-income levels in stable economies usually translate to high levels of consumption, which can be a stable source of revenue and profits for MNEs wanting to enter these markets.

Question 20

A relatively simple approach to diversification is to identify overseas projects that have performance levels that are highly correlated to domestic cash flows or project returns over time.

Accepted Answer

Diversification involves identifying overseas projects that have performance levels that are not highly correlated to domestic cash flows or project returns over time. The purpose is to minimize overall portfolio risk by spreading investments across different countries or industries. If the performance of overseas investments moves in the same direction as domestic investments, then diversification benefits may not be realized.

Quiz 8: Entry Strategies in Global Business