Question 1

Which of the following is an advantage of establishing a joint venture?

Accepted Answer

A firm benefits from a local partner's knowledge of the host country's competitive conditions, culture, language, political systems, and business systems. When the development costs and/or risks of opening a foreign market are high, a firm might gain by sharing these costs and or risks with a local partner.

Question 2

The valuable asset of firms, whose competitive advantage is based on management know-how, is their _____.

Accepted Answer

These firms' valuable asset is their brand name, and brand names are generally well protected by international laws pertaining to trademarks.

Question 3

Firms entering markets where there are no incumbent competitors to be acquired should choose _____.

Accepted Answer

In such cases, it may be better to enter by the slower route of a greenfield venture than to make a bad acquisition.

Question 4

A wholly owned subsidiary is appropriate when the firm wants:

Accepted Answer

Establishing a wholly owned subsidiary gives the firm a 100 percent share in the profits generated in a foreign market.

Question 5

According to the _____, top managers typically overestimate their ability to create value from an acquisition.

Accepted Answer

The hubris hypothesis postulates that top managers typically overestimate their ability to create value from an acquisition, primarily because rising to the top of a corporation has given them an exaggerated sense of their own capabilities.

Question 6

Which of the following is true of wholly owned subsidiaries?

Accepted Answer

A wholly owned subsidiary may be required if a firm is trying to realize location and experience curve economies (as firms pursuing global and transnational strategies try to do).

Question 7

Which of the following statements about franchising is true?

Accepted Answer

Franchising is a specialized form of licensing in which the franchiser not only sells intangible property (normally a trademark) to the franchisee, but also insists that the franchisee agree to abide by strict rules as to how it does business.

Question 8

The most typical joint venture is a _____ venture.

Accepted Answer

The most typical joint venture is a 50/50 venture, in which there are two parties, each of which holds a 50 percent ownership stake and contributes a team of managers to share operating control.

Question 9

Which of the following is true of acquisitions?

Accepted Answer

The need for preemption is particularly great in markets that are rapidly globalizing, such as telecommunications, where a combination of deregulation within nations and liberalization of regulations governing cross-border foreign direct investment has made it much easier for enterprises to enter foreign markets through acquisitions.

Question 10

_____ refer to cooperative agreements between potential or actual competitors.

Accepted Answer

Strategic alliances refer to cooperative agreements between potential or actual competitors.

Question 11

Which of the following is an advantage of franchising?

Accepted Answer

The advantages of franchising as an entry mode are very similar to those of licensing. The firm is relieved of many of the costs and risks of opening a foreign market on its own. Instead, the franchisee typically assumes those costs and risks. This creates a good incentive for the franchisee to build a profitable operation as quickly as possible.

Question 12

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.

Accepted Answer

If a firm's core competence is based on control over proprietary technological know-how, licensing and joint-venture arrangements should be avoided if possible to minimize the risk of losing control over that technology.

Question 13

To increase the potential for a successful acquisition, a firm should:

Accepted Answer

Screening the foreign enterprise to be acquired, including a detailed auditing of operations, financial position, and management culture, can help to make sure the firm does not pay too much for the acquired unit, does not uncover any nasty surprises after the acquisition, and acquires a firm whose organization culture is not antagonistic to that of the acquiring enterprise.

Question 14

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?

Accepted Answer

If a high-tech firm sets up operations in a foreign country to profit from a core competency in technological know-how, it will probably do so through a wholly owned subsidiary.

Question 15

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.

Accepted Answer

In a joint venture, a firm benefits from a local partner's knowledge of the host country's competitive conditions, culture, language, political systems, and business systems.

Question 16

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

Accepted Answer

In a wholly owned subsidiary, the firm owns 100 percent of the stock and must bear the full costs and risks of entering a foreign market.

Question 17

_____ is pursued primarily by manufacturing firms and _____ is employed primarily by service firms.

Accepted Answer

Whereas licensing is pursued primarily by manufacturing firms, franchising is employed primarily by service firms.

Question 18

If a service firm wants to build a global presence quickly and at a relatively low cost and risk, it must employ _____.

Accepted Answer

Franchising is similar to licensing and is employed primarily by service firms.

Question 19

A firm can establish a wholly owned subsidiary in a country by building a subsidiary from the ground up, called the _____.

Accepted Answer

A firm can establish a wholly owned subsidiary in a country by building a subsidiary from the ground up, the so-called greenfield strategy, or by acquiring an enterprise in the target market.

Question 20

Most service firms have found that _____ with local partners work best for controlling subsidiaries.

Accepted Answer

The subsidiaries may be wholly owned or joint ventures, but most service firms have found that joint ventures with local partners work best for the controlling subsidiaries. A joint venture is often politically more acceptable and brings a degree of local knowledge to the subsidiary.

Quiz 15: Entry Strategy and Strategic Alliances