Deck 15: Entry Strategy and Strategic Alliances

Question 1

The most typical joint venture is a 60-40 venture, in which one party holds most of the ownership stake.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

Franchising enables a firm to quickly build a global presence.

Question 5

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

Question 6

By producing its product in a centralized location, licensing limits a firm's ability to realize experience curve and location economies. 

Question 7

When determining the value of a foreign market, an international firm must consider both its products and the competition.

Question 8

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

Question 9

Acquisitions rarely produce disappointing results.

Question 10

A strategic commitment can be reversed by the top management at will.

Question 11

A wholly owned subsidiary limits a firm's control over marketing and sales in different countries.

Question 12

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

Question 13

Gadgets, Inc., wants to enter a foreign market on a small scale. This will allow it to learn about the market while limiting the firm's exposure to that market.

Question 14

If a firm's core competence is proprietary technological knowledge, a joint venture is preferable.

Question 15

Brand names such as Starbucks and Subway are well protected by international laws pertaining to trademarks.

Question 16

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 17

Exporting from a firm's home base is most appropriate when lower-cost locations for manufacturing the product can be found abroad.

Question 18

Johan's firm is considering entering a country where there are no incumbent competitors to be acquired. Its best option is likely to be a greenfield venture.

Question 19

Educating customers is an element of pioneering costs.

Question 20

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

Question 21

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

Question 22

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

Question 23

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 24

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

A) a joint venture
B) an exporting agreement
C) a turnkey project
D) a licensing agreement

Question 25

The costs and risks associated with doing business in a foreign country are typically

A) low in an economically advanced nation.
B) low in the countries of the European Union.
C) high in an economically advanced nation.
D) high in a politically stable democratic nation.

Question 26

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

A) Licensing
B) Exporting
C) Franchising
D) A turnkey contract

Question 27

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

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

Question 28

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 29

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 30

According to Bartlett and Ghoshal, how should firms from developing countries approach international expansion?

A) They suggest joint ventures to improve the firm's presence in the country while also growing the business opportunities for companies in the developing country.
B) They suggest that franchising should be used in order to minimize risk and allow for the maximum expansion in the quickest amount of time.
C) They suggest turnkey operations that allow for a rapid startup.
D) They suggest that companies should use the entry of foreign multinationals as an opportunity to learn from these competitors by benchmarking their operations and performance against them.

Question 31

A ________ is more likely to capture first-mover advantages associated with demand preemption, scale economies, and switching costs.

A) large-scale entrant
B) joint venture
C) small-scale entrant
D) turnkey contract

Question 32

Early entrants to a market that are able to create switching costs that tie customers into their products or services are capitalizing on

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

Question 33

Costs that an early entrant has to bear that a later entrant can avoid are known as

A) first-mover costs.
B) late-mover disadvantages.
C) pioneering costs.
D) licensing fees.

Question 34

Switching costs may

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 35

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 36

A disadvantage of ________ is that the firm that enters into such an arrangement will have no long-term interest in the foreign country.

A) wholly owned subsidiaries
B) exporting
C) licensing
D) turnkey projects

Question 37

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 38

________ are the advantages associated with entering a market early.

A) Pioneering advantages
B) First-mover advantages
C) Core competencies
D) Late-mover advantages

Question 39

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

Question 40

Large-scale strategic commitments may

A) have many benefits and few to no risks.
B) increase strategic flexibility.
C) have many risks and few to no benefits.
D) limit strategic flexibility.

Question 41

Which of the following is true of exporting?

A) It avoids the often substantial costs of establishing manufacturing operations in the host country.
B) It is the best choice if lower-cost manufacturing locations are available abroad.
C) Low transportation costs may make exporting uneconomical.
D) Tariff barriers may make exporting the most attractive option.

Question 42

Which of the following statements is true of turnkey projects?

A) Turnkey projects are most common in industries that use simple, inexpensive production technologies.
B) A turnkey strategy can be more risky than conventional FDI, particularly in unstable political environments.
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 43

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 44

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 45

By its very nature, ________ limits a firm's ability to coordinate strategic moves across countries.

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

Question 46

Which of the following is true of licensing?

A) Licensing is used when a firm possesses some tangible property but does not want to pursue a potential application itself.
B) The firm does not have to bear the development costs and risks associated with opening a foreign market.
C) It is an attractive option when a firm is interested in pursuing a foreign market and is ready to commit substantial resources to a foreign market.
D) It is an attractive option for firms that have the capital to open overseas markets.

Question 47

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 48

There are several disadvantages of franchising as an entry mode. Which of the following is one of them?

A) There is little incentive for the franchisee to build a profitable operation as quickly as possible.
B) The firm incurs many of the costs and risks of opening a foreign market on its own.
C) Franchising may inhibit the firm's ability to use the profits obtained to open additional businesses in the same country.
D) Franchising may inhibit the firm's ability to take profits out of one country to support competitive attacks in another.

Question 49

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 50

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 51

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

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

Question 52

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 53

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 54

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

A) turnkey contracts
B) licensing contracts
C) joint ventures
D) wholly owned subsidiary contracts

Question 55

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 56

How can a firm protect its proprietary information in a joint venture?

A) Share only the technology that is central to the core competence of the firm.
B) Hold majority ownership in the venture so that the firm has greater control over the technology.
C) Share only the technology of the firm, not the patents and copyrighted information.
D) Hold minority ownership in the venture so that the firm does not have to give over control of the technology.

Question 57

________ agreements enable firms to hold each other "hostage," thereby reducing the risk they will behave in an opportunistic manner toward each other.

A) Turnkey
B) Franchising
C) Cross-license
D) Integrated license

Question 58

What is the primary advantage of licensing?

A) It helps a firm avoid the development costs and risks 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 59

In many countries, political considerations make ________ the only feasible entry mode.

A) joint ventures
B) franchises
C) licensing agreements
D) wholly owned subsidiaries

Question 60

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

A) licensing contract
B) joint venture
C) turnkey contract
D) wholly owned subsidiary

Question 61

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 62

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 63

Firms pursuing global standardization or transnational strategies tend to prefer ________ arrangements.

A) wholly owned subsidiary
B) franchising
C) joint-venture
D) licensing

Question 64

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 65

The most typical joint venture is a ________ venture.

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

Question 66

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 67

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 68

Under ________ 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) an integrated licensing
B) a chartering
C) a franchising
D) a cross-licensing

Question 69

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

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

Question 70

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 71

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 72

A wholly owned subsidiary is appropriate when the firm wants

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

Question 73

A ________ entails establishing a firm that is owned together by two or more otherwise independent firms.

A) joint venture
B) licensing agreement
C) franchisee
D) turnkey contract

Question 74

Apple exports its products to many countries. An advantage of exporting products to another country is that it

A) minimizes exchange rate risks.
B) provides the ability to achieve experience curve and location economies.
C) faces less trade barriers.
D) gives firms access to local knowledge.

Question 75

________ 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 76

When technological know-how constitutes a firm's core competence, which entry mode is the optimal choice?

A) foreign franchises controlled by joint ventures
B) licensing agreements
C) wholly owned subsidiaries
D) turnkey contracts

Question 77

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.

Question 78

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

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

Question 79

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 80

Most service firms have found that ________ with local partners work best for the master controlling subsidiaries.

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