Question 1

The liability of foreignness is the inherent disadvantage foreign firms experience in host countries because of their nonnative status.

Accepted Answer

The liability of foreignness refers to the challenges and disadvantages that foreign firms may face in host countries because of their nonnative status, including cultural differences, unfamiliar legal and regulatory environments, and difficulties in developing relationships with local stakeholders. This concept is widely recognized in international business research as a major hurdle for foreign firms seeking to compete in global markets.

Question 2

The large size of the domestic market is the main reason firms go abroad.

Accepted Answer

The large size of the domestic market may be a factor, but there are many other reasons firms go abroad, such as gaining access to new markets, reducing costs, and acquiring new technologies and resources.

Question 3

Industries in which suppliers and buyers locate in a specific region are more likely to benefit from location-specific advantages.

Accepted Answer

When suppliers and buyers locate in a specific region, they can take advantage of location-specific advantages such as access to specialized labor, infrastructure, and resources. This can lead to increased efficiency and competitive advantage for businesses in that region.

Question 4

One of the best ways for a foreign market entrant to overcome the liability of foreignness is through its superb value of firm-specific assets.

Accepted Answer

Firm-specific assets, such as unique proprietary technologies or strong brand recognition, can help a foreign market entrant differentiate itself from local competitors and overcome the potential disadvantages of being a foreigner in the market. By leveraging these assets, the entrant can offer superior value to customers and build a competitive advantage.

Question 5

The market potential of substitute products may encourage firms to bring them abroad.

Accepted Answer

If there is a high market potential for substitute products, firms may expand abroad to capture that potential market and compete with local producers. This strategy can help the firms diversify their customer base and spread their risks.

Question 6

Backward vertical integration refers to vertical integration that has not been updated.

Accepted Answer

Backward vertical integration refers to a company acquiring a supplier or a source of raw materials. It is not a matter of being updated or not.

Question 7

Small firms in a large domestic market are less likely to internationalize because of their relatively poor resource base and large size of their domestic market.

Accepted Answer

Small firms often lack the resources needed for international expansion and may find sufficient opportunities within a large domestic market, reducing the need to internationalize.

Question 8

The more a company leverages its patented, branded, and trademarked products abroad, the less likely it is that counterfeits of these products will pop up.

Accepted Answer

The opposite is true. The more a company leverages its products abroad, the more likely it is that counterfeits will appear. This is because counterfeiters often target popular and successful brands in order to profit off their reputation and demand. Companies must be vigilant in protecting their intellectual property rights and monitoring for counterfeits.

Question 9

The bargaining power of buyers may lead to forward vertical integration.

Accepted Answer

When buyers have a strong bargaining power, they are more likely to demand lower prices and better terms from the supplier. In order to reduce their vulnerability to the bargaining power of buyers, suppliers may choose to integrate forward into the buyer's market. This allows the supplier to capture more of the value chain and reduce dependence on the buyer.

Question 10

Firms with a market-seeking strategy will locate primarily where the advantages include an abundance of innovative individuals, firms, and universities.

Accepted Answer

Market-seeking firms primarily locate in regions with large customer bases and high demand for their products, rather than focusing on innovation resources.

Question 11

Customer discrimination against foreign firms has been eliminated in recent years.

Accepted Answer

Customer discrimination against foreign firms still exists in various forms and sectors, despite efforts to reduce it.

Question 12

Under the Stage Model school of thought firms will enter culturally similar countries during their first stage of internationalization.

Accepted Answer

Under the Stage Model of internationalization, firms are expected to enter culturally similar countries at the initial stage of internationalization, and then gradually move towards culturally dissimilar countries as they gain experience and resources.

Question 13

In regards to industry-based considerations, the higher the entry barriers, the more intensely firms will attempt to compete abroad.

Accepted Answer

If entry barriers are high in a domestic market, firms may seek out opportunities to expand internationally in order to overcome these barriers and gain more market share. This can lead to increased competition in foreign markets.

Question 14

The small size of a firm is a main reason firms go abroad.

Accepted Answer

The main reason firms go abroad is to access larger markets and increase their customer base, which can be difficult to achieve in their domestic market alone. Size of a firm is not the main reason for going abroad.

Question 15

Firms that face high dissemination risks are more likely to choose against entering a foreign market.

Accepted Answer

The answer of Firms that face high dissemination risks are...

Question 16

In an obsolescing bargain, an MNE receives greater incentives from a foreign government after entering that market.

Accepted Answer

In an obsolescing bargain, the foreign government initially offers incentives to attract the MNE, but over time, as the MNE becomes more entrenched, the government may reduce incentives or impose stricter regulations.

Question 17

Small firms often go abroad to follow their large counterparts as suppliers.
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Accepted Answer

Small firms often seek opportunities to become suppliers of larger firms who have expanded their operations overseas. This allows them to access new markets and increase their revenue. Therefore, they are likely to follow their large counterparts abroad.

Question 18

A host country's local content requirements are primarily an attempt to avoid the presence of screwdriver plants.

Accepted Answer

Local content requirements are regulations that require a certain percentage of the value or volume of goods and services to be sourced locally or domestically. This is done to promote domestic industry development and reduce reliance on imports. By implementing local content requirements, countries hope to attract foreign investment that will contribute to long-term economic development, rather than just setting up assembly plants that import all their components (known as "screwdriver plants").

Question 19

Currency risks can be reduced by currency hedging or strategic and hedging.

Accepted Answer

Currency risks can be reduced by hedging strategies such as forward contracts, options, and futures, and strategic measures such as diversifying investments across different currencies, maintaining a balance between assets and liabilities in different currencies, and using natural hedges such as matching revenues and expenses in the same currency.

Question 20

The bargaining power of suppliers may prompt backward vertical integration.

Accepted Answer

If suppliers have a strong bargaining power, they may demand higher prices or better terms from their customers, which can increase the costs for the company. In response, the company may choose to integrate backward and start producing its own inputs to reduce its dependence on suppliers and gain more control over its supply chain.

Quiz 6: Entering Foreign Markets