Question 1

_____ advantages refer to the mode of entry abroad.

Accepted Answer

Internalization advantages refer to the benefits a firm gains by entering a foreign market through direct investment rather than licensing or exporting, focusing on the mode of entry.

Question 2

The Coca-Cola company has operations in more than 140 countries and generates more that 55 percent of its profits from its overseas operations.Coca-Cola's annual profits are,therefore,more stable than those of a firm that focuses upon the U.S.market alone.Coca-Cola is engaging in _____.

Accepted Answer

Coca-Cola is engaging in diversification by operating in more than 140 countries and generating more than 55% of its profits from its overseas operations. Diversification allows the company to spread its risk across multiple markets and stabilize its profits.

Question 3

The level of corruption in a country is usually a good indicator of the degree of good or poor governance in that country.

Accepted Answer

Corruption is often indicative of ineffective government institutions and lack of proper regulation and enforcement. Therefore, a high level of corruption usually means poor governance, while a lower level indicates better governance.

Question 4

Which of the following is NOT true about franchising?

Accepted Answer

In franchising, the franchisee assumes relatively less risk than with licensing because they are operating under the established brand and business model of the parent company. Therefore, option C is not true because it suggests that the parent firm assumes relatively less risk than with licensing, which is incorrect.

Question 5

A relatively simple approach to diversification is to identify overseas projects that have performance levels that are highly correlated to domestic cash flows or project returns over time.

Accepted Answer

Diversification aims to reduce the risk of a portfolio by investing in multiple assets that are not highly correlated with each other. Therefore, identifying overseas projects that have high correlation with domestic cash flows or project returns would not be a desirable approach to achieve diversification. A better approach would be to identify overseas projects that have low correlation or negative correlation with domestic cash flows or project returns.

Question 6

An agreement between two or more firms that do not involve the creation of a separate entity with joint ownership and in which the firms stand to gain revenues and maximize profits through cooperation for a given period of time is called a(n)_____.

Accepted Answer

A strategic alliance is a type of cooperative agreement where two or more firms work together without forming a separate entity or joint ownership. The main goal of a strategic alliance is to maximize profits, gain revenues, and achieve common objectives through cooperation for a given period of time. The other options such as a license, franchise, foreign acquisition, and export-import business do not accurately describe this type of cooperation between firms.

Question 7

Interestingly,licensing and franchising typically leads to the penetration of international markets without significant capital investment abroad by the parent company.

Accepted Answer

Licensing and franchising allow companies to expand into international markets without the need for significant capital investment because the local licensee or franchisee invests in the business and assumes most of the operating costs. This allows the parent company to focus on developing and marketing its products or services while collecting royalties or franchise fees from the local partner.

Question 8

When MNEs go abroad,they generally do so for two major reasons.There could be massive competition in the home market or firms may genuinely identify new business opportunities abroad based upon the company's competitive advantage in production,technology and management.

Accepted Answer

MNEs generally go abroad for reasons of intense competition in the home market or to seek new business opportunities based on their competitive advantages in production, technology, and management.

Question 9

Microsoft (United States),Toyota (Japan),Lenovo, (China),and Petrobras (Brazil)are just a few of the hundreds of large multinational enterprises that are based in one country but own and operate establishments in others.

Accepted Answer

The statement is true.

Question 10

Subsidiaries require major marketing efforts to penetrate the international market because of cultural differences and because the entrant is new and relatively unknown.

Accepted Answer

This statement is true because cultural differences can significantly impact marketing strategies, and a subsidiary of a company may be unknown to the target market, thus requiring a significant marketing effort to establish its presence and brand image.

Question 11

MNEs can never successfully enter foreign markets as traders,licensors,or franchisors.

Accepted Answer

This statement is false. MNEs have successfully entered foreign markets as traders, licensors, and franchisors. Many well-known brands and companies have expanded globally through these modes of entry. However, the success of their entry depends on various factors such as market research, understanding local laws and culture, strategic partnerships, etc.

Question 12

A new facility built and operated overseas that requires large investments of capital is an example of a _____.

Accepted Answer

A subsidiary is a company that is completely or partly owned and partly or wholly controlled by another company, which is referred to as the parent company. When a new facility is built and operated overseas with significant capital investment, it typically becomes a subsidiary of the parent company that provided the investment.

Question 13

When it comes to franchising,the parent company's objective is to make sure that when a customer visits its franchisee in any country,the quality of products and services provided are similar in every store.

Accepted Answer

This is because the parent company wants to maintain consistency and a strong brand image across all locations, regardless of the country in which they are operating.

Question 14

When Coca-Cola acquired major assets of Parle Exports in India,it instantly received access to Parle's huge national bottling and distribution network.This is an example of international joint venture in global markets.

Accepted Answer

This is not an example of a joint venture. Coca-Cola acquired assets of Parle Exports, which is an acquisition, not a joint venture.

Question 15

Strategic alliances are primarily aimed at enhancing goodwill.

Accepted Answer

Strategic alliances are primarily aimed at achieving mutual benefits such as cost reduction, sharing of resources and knowledge, market expansion, and technology transfer. While enhancing goodwill may be a potential result of a successful alliance, it is not the primary objective.

Question 16

The only profitable way for foreign firms to enter trade-restricted markets is through FDI rather than through exports.

Accepted Answer

Foreign Direct Investment (FDI) involves investing in a foreign country by setting up operations like subsidiaries, joint ventures, or acquiring local companies. In trade-restricted markets, strict regulations limit or ban foreign imports and exports, making it difficult to penetrate such markets through exports. In contrast, FDI provides companies with the opportunity to establish a local presence and access the market while complying with local regulations. Therefore, FDI is a more viable option for foreign firms in trade-restricted markets to enter and profit from the market.

Question 17

A fundamental consideration that must be made in business is the risk-return trade-off.In general,the greater the risk (loss of capital invested)entrepreneurs are willing to take,the greater the rewards (profit)they are likely to reap.

Accepted Answer

The statement correctly reflects the principle of risk-return trade-off, where taking on greater risk can result in potentially higher returns.

Question 18

Mexico consistently has been the world's largest recipient of FDI capital in the world averaging some $200 billion a year in net FDI inflows since 2005.Mexico has been made more globally competitive as a consequence of such FDI flows.

Accepted Answer

While Mexico has received significant foreign direct investment (FDI), it has not been the world's largest recipient, nor has it averaged $200 billion a year in net FDI inflows since 2005. The United States and China have been among the top recipients of FDI globally.

Question 19

A major reason why growth-oriented MNEs establish operations abroad is to diversify and minimize risk so that overall corporate cash flows and earnings will be relatively stable.

Accepted Answer

The statement is true. Growth-oriented MNEs establish operations abroad to diversify their operations and minimize risks in order to achieve stability in their overall corporate cash flows and earnings. This diversification helps them to exploit growth opportunities in different markets, optimize their production costs, and reduce their vulnerability to economic and political risks in specific countries.

Question 20

Trade barriers lead to decreased competition from abroad,and raise prices and profits of domestic firms.Interestingly,such protection over time will often lead to higher-quality domestic products and services.

Accepted Answer

Trade barriers limit competition, which can prevent domestic firms from improving their products and services to meet international standards. As a result, protectionism may lead to a lack of innovation, decreased efficiency, and higher prices for consumers.

Quiz 9: Corruption and Ethics in Global Business