Question 1

Which of the following is an advantage of franchising?

Accepted Answer

Franchising allows a firm to enter a foreign market without bearing the full costs and risks of doing so on its own. This is because the franchisee invests the capital to set up the business and takes on most of the ongoing operating costs. Additionally, the franchisee is often responsible for marketing and promoting the business, which reduces the franchisor's expenses.

Question 2

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

Both licensing and joint-venture involve sharing proprietary technology with other companies, which increases the risk of losing control over it. Therefore, these arrangements should be avoided if possible to protect the firm's core competency. Wholly owned subsidiary and exporting arrangements do not necessarily involve sharing technological know-how and are not as risky in this regard. Turnkey contracts may involve sharing technology, but they are usually short-term and may not pose as much of a risk as licensing or joint-venture arrangements.

Question 3

A wholly owned subsidiary is appropriate when:

Accepted Answer

A wholly owned subsidiary is appropriate when the firm wants 100 percent of the profits generated in a foreign market. This is because a wholly owned subsidiary gives the firm complete control over operations and decision-making, allowing them to maximize profits without having to share them with any partners or investors.

Question 4

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

Accepted Answer

In a wholly owned subsidiary, the parent company (firm) owns 100 percent of the stock of the subsidiary, making it a fully owned subsidiary rather than a joint venture or a franchise agreement. A turnkey project is a type of contract where a contractor designs and constructs a facility and hands it over fully operational to the client, so it is not relevant to ownership structure.

Question 5

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

Accepted Answer

A firm's brand name is a valuable asset when its competitive advantage is based on management know-how. This is because a strong brand name can help differentiate the firm's products or services in the market and build consumer loyalty, which ultimately contributes to the firm's success. The other options (top management staff, USP, and advertisements) are important factors for a firm's success but are not as directly linked to a competitive advantage based on management know-how.

Question 6

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

A joint venture involves two or more companies coming together to form a new entity, sharing ownership and control. This allows for shared knowledge and resources, including the local partner's knowledge of the host country's competitive conditions, culture, language, political systems, and business systems. A turnkey project involves a company setting up a plant or operation in another country and handing over the "key" to a local company to operate. A greenfield investment involves building a new facility in a foreign country. A licensing arrangement involves one company licensing the use of its technology or brand to another company.

Question 7

The most typical joint venture is a _____ venture.

Accepted Answer

A 50/50 joint venture is the most typical and common type of joint venture, where both parties invest equally in the venture and share equal ownership and control.

Question 8

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

Accepted Answer

The hubris hypothesis suggests that top managers overestimate their own capabilities and believe they can create more value from an acquisition than is realistic. This can lead to overpayment and poor performance.

Question 9

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 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 true of wholly owned subsidiaries?

Accepted Answer

Wholly owned subsidiaries are a popular entry mode when a firm is trying to realize location and experience curve economies. This entry mode allows the firm to have complete control over operations, technology, and other resources in the foreign market, leading to better cost management and knowledge sharing. However, wholly owned subsidiaries are often expensive to establish and maintain, making them less feasible for firms with limited capital. Political considerations and host-government regulations may also play a role in determining the feasibility of this entry mode.

Question 12

Which of the following statements about franchising is true?

Accepted Answer

Franchising is a specialized form of licensing in which the franchiser grants the franchisee the right to use its trademark and business model in exchange for a fee and ongoing royalties. Franchising tends to involve longer-term commitments than licensing, and it can result in consistent product quality due to the standardized processes and training provided by the franchiser. While franchising is commonly associated with service businesses such as restaurants and retail stores, it is also used in manufacturing and other industries.

Question 13

Which of the following is true of acquisitions?

Accepted Answer

Acquisitions are often made to preempt competitors, meaning that firms acquire other companies in order to prevent their competitors from doing so first.

Question 14

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

Accepted Answer

A greenfield strategy involves building a subsidiary from scratch in the foreign country, which is also called a wholly owned subsidiary. A joint venture is a partnership between two or more companies, a turnkey strategy involves purchasing a company that is already established and operational, and a licensing agreement involves granting the rights to use a company's intellectual property to a foreign entity.

Question 15

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 allows a service firm to quickly expand its presence globally by giving other entrepreneurs the right to use its business model and brand name. This allows for low-cost and low-risk expansion as the franchisees are responsible for the initial investment and operational costs.

Question 16

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

Wholly owned subsidiaries would be the best choice for a high-tech firm to set up operations in a foreign country to profit from a core competency in technological know-how. This allows the firm to have complete control over operations and protect its intellectual property while also allowing for flexibility in adapting to local market conditions. Joint ventures and licensing may not provide enough control or protection for the firm's core competency, while turnkey contracts are more suitable for specific, one-time projects rather than ongoing operations.

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

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

Accepted Answer

Joint ventures allow service firms to have some level of control over their subsidiaries while also sharing resources and risks with local partners. This can be especially important in industries where local knowledge and connections are vital for success. Licensing agreements, greenfield investments, and turnkey projects may not provide the same level of control or partnership with local firms.

Question 19

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

Accepted Answer

Greenfield investments are the best choice in this situation as they involve building a new facility from scratch in the target market. This allows the firm to have complete control over the new operation and tailor it to their specific needs and strategies. Joint ventures and acquisitions are for firms aiming to enter a market where there are already established companies, so they can gain access to their resources or customers. Takeovers involve buying a controlling stake in an existing company, which is also not applicable in this scenario.

Question 20

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

Accepted Answer

Joint ventures allow firms to share the costs and risks of entering a foreign market with a local partner, which can be particularly advantageous when these costs and risks are high. Additionally, local partners can provide valuable knowledge of the host country's competitive conditions, culture, language, etc. Choice A is incorrect because joint ventures are not immune to government interference or nationalization, and choice B is incorrect because joint ventures do not necessarily provide tight control over subsidiaries. Choice D is also incorrect for the reasons previously stated.

Quiz 15: Entry Strategy and Strategic Alliances