Question 1

What is an example of an intangible property?

Accepted Answer

A patent is an example of intangible property as it represents intellectual property rights rather than a physical object.

Question 2

An oil-rich country in the Middle East wants to develop its own refining industry but lacks the technology to do so. To accomplish their goal, they decide to enter into an agreement with a U.S. firm that has this technology. The U.S. firm is pleased to make this agreement because without it, they could never gain value from their technology in this country due to its limits on FDI. What type of agreement did these companies use?

Accepted Answer

A turnkey agreement is when a firm sets up a plant for a foreign client and hands over the "key" when the plant is fully operational. This allows the oil-rich country to gain the technology needed for refining without direct foreign investment.

Question 3

High transportation costs are a disadvantage for companies that

Accepted Answer

Shipping large, bulky products typically incurs higher transportation costs due to their size and weight, making it a disadvantage for companies dealing with such products.

Question 4

In a ________, a firm agrees to set up an operating plant for a foreign client and hand over the plant when it is fully operational.

Accepted Answer

A turnkey project involves a firm setting up an operating plant for a foreign client and handing it over when it is fully operational.

Question 5

As the Chief Financial Officer for a metal refinery, Kaylee disagrees with using a turnkey strategy to enter into the Asian market. She is concerned that the company will not benefit from a long-term interest and could lose financially if the market proves to be successful. What is one way the metal refinery could get around this concern?

Accepted Answer

Taking a minority equity interest in the operation allows the company to have a stake in the business, providing potential long-term financial benefits if the market is successful, while also mitigating the risk of losing control over the operation.

Question 6

Turnkey projects, being short-term propositions, can be disadvantageous for a firm if a country subsequently proves to be a major market for the output of the process that has been exported. The firm can get around this problem by

Accepted Answer

Taking a minority equity interest in the operation allows the firm to maintain some level of control and benefit from the market without fully committing to a long-term presence.

Question 7

When Yum Brands (which owns KFC, Taco Bell, and Pizza Hut) entered China, it had to spend heavily to establish itself in that market. What would be a disadvantage of Yum Brands' large-scale entry into China?

Accepted Answer

A large-scale entry into China would require significant resources, potentially limiting Yum Brands' ability to allocate resources for expansion in other markets.

Question 8

Farm Tuff Inc. hired a local agent to handle marketing when it started exporting products to Europe. Unfortunately, the local agent also handled the marketing for a competitor, Agri-Corp., and Farm Tuff soon realized the agent could not be "loyal" to their product. What should Farm Tuff do to best remedy this situation to its advantage?

Accepted Answer

Setting up a wholly owned subsidiary allows Farm Tuff to have full control over its marketing efforts in Europe, eliminating conflicts of interest and ensuring loyalty to their products.

Question 9

California Fresh Food wants to expand internationally. Sales Director Sun-Jun Lee prefers that the company export to foreign markets. What rationale should Lee use to show the advantage of exporting as a mode of entry?

Accepted Answer

Exporting allows a firm to avoid the costs associated with establishing manufacturing operations in a foreign country, making it a cost-effective entry mode.

Question 10

Small-scale entry into a foreign market makes it difficult to build market share because it

Accepted Answer

Small-scale entry often signals a lack of commitment, which can hinder the ability to build significant market share as it may not demonstrate the necessary dedication and resources to compete effectively.

Question 11

When considering modes of entry, Christopher Bartlett and Sumantra Ghoshal suggest that companies based in developing nations should

Accepted Answer

Bartlett and Ghoshal suggest that companies from developing nations should benchmark their operations and performance against foreign multinationals to improve their competitiveness and capabilities.

Question 12

Storm Fighters Inc. makes winter clothing in the United States, and it is looking to distribute its products in Europe. Rather than build and maintain a manufacturing facility in the Netherlands, the company decides to ship its winter gear directly from its plant in Montana. What type of entry mode is the company using?

Accepted Answer

The company is using exporting as its entry mode by shipping its products directly from its manufacturing plant in the United States to Europe without establishing a local production facility.

Question 13

One disadvantage of large-scale entry into a foreign market is the

Accepted Answer

Large-scale entry into a foreign market can consume significant resources, which may limit a firm's ability to invest in and expand into other potentially attractive markets.

Question 14

Which type of entry allows a company to learn about the foreign market while limiting the firm's exposure to that market?

Accepted Answer

Small-scale entry allows a company to test the waters in a foreign market with limited resources and risk, enabling them to learn about the market without significant exposure.

Question 15

Porter's PaleAle is considering small-scale entry into the European market. What would be a disadvantage of small-scale entry for this firm?

Accepted Answer

Small-scale entry may make it difficult for Porter's PaleAle to build significant market share and capture first-mover advantages, as they may not have the resources or presence to compete effectively against established players.

Question 16

A likely outcome of a foreign firm entering a developed nation on a small scale after other international businesses in the industry is

Accepted Answer

Entering a developed market on a small scale after other firms have already established themselves can limit future growth potential due to established competition and market saturation.

Question 17

What is an advantage of turnkey projects as a mode of entry into foreign markets?

Accepted Answer

Turnkey projects allow firms to earn returns from their technological expertise by setting up a fully operational facility for a foreign client, which is particularly beneficial for complex processes.

Question 18

Bossy Boots decided to export its products by hiring local marketing agents in each country. Over the years, Bossy Boots ran into various problems with these local marketing agents that affected both sales and profitability. Bossy Boots can overcome its problems with local marketing agents by

Accepted Answer

Setting up wholly owned subsidiaries allows Bossy Boots to have full control over its operations and marketing strategies in foreign nations, reducing dependency on local agents and mitigating associated problems.

Question 19

How can firms avoid incurring high transport costs when exporting bulk products?

Accepted Answer

Manufacturing bulk products regionally can help firms avoid high transport costs by reducing the distance goods need to be shipped, thus lowering transportation expenses.

Question 20

Complex and expensive technology is needed to develop products at Feel-Better Pharmaceuticals based in Austin, Texas. For this reason, the company plans to have a plant built in Portugal that is ready for full operation and will be used for products sold in Europe. What type of entry mode is Feel-Better Pharmaceuticals using?

Accepted Answer

A turnkey project involves setting up a fully operational facility in a foreign country, which is what Feel-Better Pharmaceuticals is doing by having a plant built in Portugal for their European market.

Quiz 13: Entering Foreign Markets