Question 1

The Spanish company,Almodovar Family Holdings obtained the right to produce and sell the U.S.-based Omega,Inc.'s products in Spain in return for a royalty fee to Omega,Inc.on every unit it sells in Spain.Almodovar Family Holdings is Omega,Inc.'s

Accepted Answer

Almodovar Family Holdings is obtaining the right to produce and sell Omega, Inc.'s products in Spain in return for a royalty fee, which makes them the licensee. Omega, Inc. is the licensor in this scenario.

Question 2

As a company policy,Alberton Consumer Products periodically grants foreign entities the right to produce and sell its products in return for a royalty fee on every unit sold.Alberton Consumer Products' approach is

Accepted Answer

Alberton Consumer Products is granting the right to produce and sell its products to foreign entities in return for a royalty fee, which is the definition of licensing.

Question 3

Ohio Manufacturing prefers FDI over licensing to retain control over know-how,manufacturing,and marketing.Ohio Manufacturing's stance constitutes the

Accepted Answer

Ohio Manufacturing's preference for FDI over licensing to retain control over know-how, manufacturing, and marketing suggests that they perceive market imperfections such as incomplete contracts or asymmetric information that could lead to opportunistic behavior by their potential licensing partners. FDI allows Ohio Manufacturing to maintain greater control over their intellectual property and production processes. This aligns with the market imperfections approach, which argues that market failures create opportunities for firms to engage in cross-border investments rather than just relying on arm's length transactions like licensing.

Question 4

Arnold & Sons,a leading manufacturer of cement in the U.S is considering exporting as its FDI strategy.Exporting may not be a good option for Arnold & Sons because of cement's

Accepted Answer

Cement has a low value-to-weight ratio, meaning that the cost of transportation and logistics can be quite high, which can make exporting a less viable option for Arnold & Sons.

Question 5

A firm will favor FDI over exporting as an entry strategy when

Accepted Answer

When transportation costs or trade barriers are high, it becomes less economically feasible for a firm to export its goods. In such cases, establishing production facilities in the foreign market through FDI enables the firm to circumvent these obstacles and access the local market more effectively.

Question 6

The cement market in Erbia is dominated by four firms.These firms control 85 percent of selling and buying of the domestic market.Which of the following terms explains the market structure of the cement industry in Erbia?

Accepted Answer

An oligopoly market structure is characterized by a small number of large firms dominating the market. The fact that four firms control 85 percent of the market share in the cement industry in Erbia suggests an oligopoly market structure.

Question 7

A firm is most likely to favor foreign direct investment over exporting when

Accepted Answer

A firm would favor foreign direct investment over exporting when it wishes to maintain control over its operations and business strategy. This allows the firm to fully control every aspect of its business, from marketing and sales to production and distribution, and adapt to local market conditions. Exporting involves selling products to foreign markets, which means that a company has less control over how its products are sold and distributed in foreign markets.

Question 8

The top management team at the Kentucky-based Mumford Products collectively support the market imperfections approach.This means Mumford Products' top management team is most likely to

Accepted Answer

The market imperfections approach suggests that firms prefer FDI over licensing due to issues like control and the risk of losing proprietary technology, which aligns with Mumford Products' preference for FDI.

Question 9

The market imperfections approach seeks to explain

Accepted Answer

The answer of The market imperfections approach seeks to explain
...

Question 10

Governments impose quotas to limit

Accepted Answer

Quotas are typically imposed on importing, as a means of limiting the amount of foreign goods that can enter a country's market. Quotas can be used to protect domestic industries and jobs or to promote local production of goods. The other options listed (FDI, franchising, outsourcing, licensing) are not typically subject to quota restrictions.

Question 11

Omega,Inc.produces an entire line of stationery products at its manufacturing facility in the U.S.and then ships all over Europe for sale.Omega,Inc.is

Accepted Answer

Omega, Inc. is shipping its products to another country for sale, which falls under the definition of exporting. Outsourcing involves hiring another company to perform a certain task, licensing involves giving another company the right to use your brand or proprietary information, franchising involves giving another company the right to use your business model and trademarks, and diversifying involves expanding into new markets or products.

Question 12

According to internalization theory,one of the drawbacks of licensing is that

Accepted Answer

The answer of According to internalization theory,one of the drawbacks...

Question 13

Jingo Products is a market leader in playground equipment which is typically large and bulky and weighs a lot.Because of competitive reasons,Jingo Products sells its entire line at very low prices.Although its products can be produced anywhere,it is considering exporting as a way to grow in overseas markets.The viability of Jingo Products' exporting strategy could be constrained by transportation costs,particularly of products that can be produced in almost any location and have a

Accepted Answer

The transportation costs would be a constraint for Jingo Products' exporting strategy if its products have a low value-to-weight ratio, meaning that they are bulky and heavy compared to their value. This would make the transportation costs relatively high compared to the value of the products, which could make exporting less viable. The other options are not relevant to the issue of transportation costs.

Question 14

A critical competitive feature of an oligopoly is the

Accepted Answer

The interdependence of the major players is a critical competitive feature of an oligopoly. This means that the actions of one firm will have a direct impact on the other firms in the market, leading to strategic behavior and cooperation among the players. The lack of interaction (A), presence of a domestic market open for foreign firms (B), and desire to avoid diminishing returns (C) are not necessarily unique to oligopolies and may be present in other market structures. The lack of imitative behavior (E) is also not necessarily a feature of oligopolies, as firms may engage in both imitation and differentiation strategies in order to compete.

Question 15

The argument that firms prefer FDI over licensing to retain control over know-how,manufacturing,marketing,and strategy or because some firm capabilities are not amenable to licensing constitutes the

Accepted Answer

The argument that firms prefer FDI over licensing to retain control over know-how, manufacturing, marketing, and strategy or because some firm capabilities are not amenable to licensing is explained by the internalization theory. This theory suggests that firms opt for FDI to internalize their business activities within their organizational boundaries rather than relying on external partners through licensing. This way, they can retain control over their core competencies and knowledge assets, which are critical to their competitive advantage.

Question 16

When it comes to FDI,Granular Holdings,Inc.makes greenfield investments in various foreign countries and fully manages all foreign operations on its own.Granular Holdings' FDI approach is risky because of the problems associated with

Accepted Answer

Granular Holdings' FDI approach involves fully managing all foreign operations on its own, which can pose challenges when operating in a different culture with different rules of the game. This can lead to cultural misunderstandings and difficulties in navigating local rules and regulations, making it a risky approach to FDI. The other options (A, B, D, E) do not directly relate to the risks associated with managing foreign operations independently in a different cultural and regulatory environment.

Question 17

Which of the following reflects internalization theory?

Accepted Answer

Licensing may result in a firm's giving away valuable technological know-how to a potential foreign competitor, which is a key concern of internalization theory.

Question 18

Incandescent Lightings,a U.S.-based firm does not want to bear the costs of establishing production facilities in a foreign country.Incandescent Lightings should avoid

Accepted Answer

Foreign Direct Investment (FDI) involves establishing production facilities or acquiring stake in foreign companies, which would result in higher costs for Incandescent Lightings. Therefore, they should avoid FDI and explore other options like exporting or licensing.

Question 19

If one firm in an oligopoly cuts prices,then most likely,its competitors will

Accepted Answer

In an oligopoly, each firm has a significant market share and their actions affect the market. If one firm cuts prices, it creates an incentive for its competitors to also cut prices to remain competitive and maintain market share. Therefore, the most likely response of competitors in an oligopoly to a price cut by one firm is to also lower their prices.

Question 20

Which of the following is one of the limitations of exporting that leads companies to prefer FDI over exporting?

Accepted Answer

The presence or threat of trade barriers can make exporting difficult and costly, leading companies to prefer FDI as a way to access foreign markets more easily. The other options may also be factors, but this is the most direct answer to the question.

Quiz 8: Foreign Direct Investment