Question 1

Bechtel, a construction and engineering firm, has a contract with the Indian government to expand the airport in New Delhi. Bechtel will design, construct, and equip the airport before turning the facility over to the Indian government upon completion. Which entry mode for international business is used by Bechtel?

Accepted Answer

Bechtel's involvement in designing, constructing, and equipping the airport in New Delhi before handing it over to the Indian government is characteristic of a turnkey project. In a turnkey project, a company agrees to fully design, construct, and equip a facility and then turn the project over to the purchaser when it is ready for operation.

Question 2

Which term refers to compensation under a licensing agreement?

Accepted Answer

Royalty is the term used to refer to compensation under a licensing agreement, where the licensee pays the licensor a percentage of the revenue from the use of the licensed property.

Question 3

The greater the investment costs incurred by the licensee, the longer is the likely duration of the licensing agreement.

Accepted Answer

This is because a licensee who has invested heavily in the licensing agreement will likely seek a longer duration to recoup their investment and maximize returns, while the licensor may agree to ensure a stable, long-term partnership.

Question 4

In comparison to licensing, franchising offers a firm ________.

Accepted Answer

Franchising offers a firm more control over the franchisee compared to licensing. This includes control over operations, branding, and adherence to business models.

Question 5

Explain the licensing process.

Accepted Answer

The answer of Explain the licensing process....

Question 6

Pharmaceutical firms routinely use licensing as their entry mode.

Accepted Answer

Pharmaceutical firms often use licensing as an entry mode to enter new markets or collaborate on drug development due to the high costs and risks associated with R&D, regulatory approvals, and the need for local market expertise. Licensing allows them to access new technologies, share risks, and comply with local regulations more efficiently.

Question 7

Carmichael Candies, a U.S. firm, is considering the idea of entering the EU market through an international franchising agreement. What is the main advantage to Carmichael if the firm chooses this entry method?

Accepted Answer

Avoidance of tariffs is a main advantage of entering a market through franchising. By franchising in the EU, Carmichael Candies can avoid the tariffs that would be imposed on exports, making it a cost-effective strategy for market entry.

Question 8

McDonald's, Pizza Hut, and KFC all rely on franchising for their international expansion.

Accepted Answer

These companies use franchising as a primary strategy for international expansion, allowing local franchisees to operate stores, which helps in adapting to local markets and reducing operational risks.

Question 9

The firm that leases the right to use intellectual property is called the ________.

Accepted Answer

The firm that leases the right to use intellectual property is called the licensor, while the firm that acquires these rights is known as the licensee.

Question 10

The Nintendo Company manufactures electronic video consoles and game cartridges. Nintendo provides game design firms with technical specifications for how Nintendo consoles function. The game design firms create the games and then pay Nintendo a fee to manufacture those games. What mode of entry is described in this example?

Accepted Answer

This is an example of licensing, where Nintendo licenses its technology and specifications to game design firms, allowing them to create games compatible with Nintendo consoles in exchange for a fee.

Question 11

How is compensation typically addressed in international licensing and franchising contracts? What basic issues should be addressed in such contracts?

Accepted Answer

The answer of How is compensation typically addressed in international...

Question 12

Royalties are determined most commonly as a percentage of the sales of the licensed products.

Accepted Answer

Royalties are often calculated as a percentage of gross or net revenues derived from the use of an asset or a fixed price per unit sold of an item of such, making it a common method to determine the payment for the use of intellectual property, such as copyrights, patents, and trademarks.

Question 13

Kodak focuses on developing photo editing software, and the firm has agreements with a Chinese manufacturer to assemble most Kodak cameras. Which entry mode for international business is used by Kodak?

Accepted Answer

Kodak is using contract manufacturing as its entry mode for international business, which involves outsourcing its camera production to a manufacturer in China while focusing on its core competency, which is developing photo editing software.

Question 14

International franchising is most likely to succeed when the franchisor has ________.

Accepted Answer

International franchising tends to be more successful when the franchisor has already proven the business model and achieved success in the domestic market. This success indicates that the business model is viable and potentially adaptable to international markets.

Question 15

British Airways has an arrangement with a state-owned airline headquartered in Brazil. British Airways provides the Brazilian airline with advice on reservation services and scheduling. Which entry mode for international business is used by British Airways?

Accepted Answer

A management contract is an arrangement under which operational control of an enterprise is vested by contract in a separate enterprise which performs the necessary managerial functions in return for a fee. British Airways providing advice on reservation services and scheduling to a Brazilian airline fits this model, as they are essentially managing those aspects of the airline's operations.

Question 16

Vinson Bicycles, a U.S. firm, is considering the idea of entering the EU market through an international licensing agreement. What is the main disadvantage of this entry method for Vinson?

Accepted Answer

International licensing agreements often result in limited market opportunities because the licensor (Vinson Bicycles) may have less control over the marketing and distribution of their products, potentially limiting their ability to fully capitalize on the market.

Question 17

International franchising is among the fastest growing forms of international business.

Accepted Answer

International franchising has been rapidly expanding as it allows businesses to enter foreign markets with lower risks and investments compared to establishing wholly-owned subsidiaries.

Question 18

What types of government actions may encourage licensing?

Accepted Answer

The answer of What types of government actions may encourage...

Question 19

What is the difference between international licensing and international franchising? What are the advantages of each entry mode?

Accepted Answer

The answer of What is the difference between international licensing...

Question 20

When the licensor fully investigates market opportunities and the abilities of its licensees, licensing has a relatively low financial risk.

Accepted Answer

Licensing involves lower financial risk because the licensor typically requires less investment in foreign markets, relying instead on the licensee to manufacture, market, and distribute the products, while the licensor benefits from royalties and expanded market presence without the high costs associated with establishing and operating a foreign subsidiary.

Quiz 12: Strategies for Analyzing and Entering Foreign Markets