Deck 14: Exporting and Countertrade

Question 1

In international trade transactions, an open account is considered as a more secure method of payment than a letter of credit.

Answer 1

False

Question 2

Reva Inc. is a U.S.-based automobile manufacturing company that sets up manufacturing bases in India. Its suppliers followed them to India. This is an example of a proactive move.

Answer 2

False

Question 3

The pre-internationalization stage of internationalization is followed by the committed involvement stage.

Answer 3

False

Question 4

Cash in advance is the most secure method of getting paid in international business.

Question 5

Exporting and importing collectively refer to international trade.

Question 6

Incoterms are universally accepted terms of sale that specify how the buyer and the seller share the cost of freight and insurance in an international transaction and at which point the buyer takes title to the goods.

Question 7

Exporting, licensing, and franchising require a relatively low level of managerial commitment and dedicated resources.

Question 8

Firms that internationalize their operations in order to reap the profits of a high-growth market are exhibiting a proactive business strategy.

Question 9

Compared to other entry strategies, exporting minimizes risk and maximizes flexibility.

Question 10

Global sourcing and exporting can be classified as equity or ownership-based international business activities.

Question 11

The Internet provides the means to export pure services.

Question 12

Large MNEs use exporting as a manner of initial internationalization, but once they build large manufacturing facilities abroad, the firm no longer exports many products due to the high costs involved.

Question 13

When government agencies cite statistics on trade deficits, trade surpluses, and the volume of merchandise trade for individual countries, these data generally refer to firms' collective exporting and importing activities.

Question 14

Licensing and franchising are typical examples of home-based international exchange activities.

Question 15

Countertrade refers to an international business transaction in which full or partial payments are made in kind rather than cash.

Question 16

The bill of lading is the "birth certificate" of the goods being shipped and indicates the country where they originate.

Question 17

Push factors include unfavorable trends in the domestic market that compel firms to explore opportunities beyond national borders.

Question 18

Indirect exporting is exporting that is accomplished by contracting with intermediaries located in the foreign market.

Question 19

National governments require exporters to obtain a license to protect the exported goods against damage, loss, pilferage, and delay.

Question 20

The exporter usually first issues a quotation or pro forma invoice upon request by potential customers.

Question 21

An open account is a contract between the banks of a buyer and a seller that ensures payment from the buyer to the seller upon receipt of an export shipment.

Question 22

Which of the following foreign market entry strategies requires the most substantial resource commitment on the part of the focal firm?

A) global sourcing
B) licensing
C) franchising
D) majority-owned equity joint venture

Question 23

Which of the following represents outbound home-based international exchange activities?

A) foreign direct investment
B) equity-based collaborative venture
C) exporting
D) franchising

Question 24

The risks and need for financing associated with international sales can be alleviated through the use of distribution channel intermediaries.

Question 25

Compensation deal is a type of countertrade in which goods are directly exchanged without the transfer of any money.

Question 26

Countertrade is an elaborate and international form of the bartering system, and it accounts for one-third of all global trade.

Question 27

The ability to formulate and implement marketing plans and the extent of geographic coverage provided in the target market are evaluation criteria for an export intermediary's managerial commitment.

Question 28

Countertrade is ________.

A) an international business transaction where all or partial payments are made in kind rather than cash
B) the establishment of a firm's presence in a foreign market by investing capital and securing ownership of a factory, subsidiary, or other facility there
C) the procurement of products or services from independent suppliers or company-owned subsidiaries located abroad for consumption in the home country or a third country
D) the strategy of producing products or services in one country (often the producer's home country), and selling and distributing them to customers located in other countries

Question 29

When large MNEs access equity financing by selling corporate bonds or shares in stock markets, it is considered as intracorporate financing.

Question 30

When a firm establishes a presence in the foreign market by investing capital in and securing ownership of a factory, subsidiary, or other facility there, it is typically a(n) ________.

A) equity-based international business activity
B) contractual relationship
C) home-based international exchange activity
D) inbound international exchange activity

Question 31

Exporting is ________.

A) the procurement of products or services from independent suppliers or company-owned subsidiaries located abroad for consumption in the home country or a third country
B) the procurement of selected value-chain activities, including production of intermediate goods or finished products, from independent suppliers
C) the transfer of state-owned industries to private concerns
D) the strategy of producing products or services in one country (often the producer's home country), and selling and distributing them to customers located in other countries

Question 32

Trade fairs are not only excellent sites to meet potential intermediaries, they also provide the means to become familiar with key players in the local industry and to generally learn about the target market.

Question 33

Because of the risk involved in an open account, exporters use this approach only with customers of long-standing or excellent credit, or with a subsidiary owned by the exporter.

Question 34

Factoring occurs when an independent company coordinates an export order in the seller's country and makes payment for the goods in the currency of that country.

Question 35

Export Development Corporation is an example of a government assistance program in India.

Question 36

Which of the following activities can be classified as home-based international exchange activities?

A) foreign direct investment
B) equity-based collaborative venture
C) countertrade
D) franchising

Question 37

Frezt Inc., a focal firm, is a telecommunications company based in the United States. The company maintains a relatively low degree of control over its operations in Mexico City. The company has delegated most of its distribution activities to its Mexican partners. Which of the following foreign market entry strategies is the company implementing?

A) majority-owned equity joint venture
B) minority-owned equity joint venture
C) global sourcing
D) wholly owned subsidiary (FDI)

Question 38

Which of the following foreign market entry strategies offers the focal firm the highest degree of control over foreign operations?

A) exporting
B) wholly owned subsidiary (FDI)
C) global sourcing
D) countertrade

Question 39

________ is the procurement of products or services from independent suppliers or company-owned subsidiaries located abroad for consumption in the home country or a third country.

A) Importing
B) Exporting
C) Offshoring
D) Microfinancing

Question 40

Licensing and franchising are ________.

A) ownership-based international activities
B) turnkey operations
C) contractual relationships
D) home-based international exchange activities

Question 41

Two-way trade between ________ and the United States represents the world's largest bilateral trading relationship.

A) China
B) Canada
C) Vietnam
D) Russia

Question 42

After managers have chosen an appropriate market for exporting, the next step is to ________.

A) decide about the resources to be committed
B) acquire the skills and competencies to handle export operations
C) engage appropriate international trade attorneys
D) modify advertising and promotional activities to suit individual markets

Question 43

Which of the following industries-large, publicly traded U.S.-based manufacturing firms-will be more dependent on international sales?

A) publishing
B) medical equipment
C) electrical equipment
D) automobile

Question 44

Favorable foreign market conditions that encourage firms to internationalize are known as ________.

A) proactive factors
B) reactive factors
C) push factors
D) pull factors

Question 45

The Internet facilitates international trade in the service sector by ________.

A) providing the means to export some types of services to foreign markets
B) providing the means to avoid taxes in the foreign market
C) allowing firms to attain maximum control by establishing ownership of key assets
D) eliminating the need to deal with foreign currency exchange rates

Question 46

GrajQ GmbH., an automobile manufacturing company based in Germany, requires a low-risk strategy to enter China. Which of the following foreign market entry strategies is the most suitable for GrajQ?

A) minority-owned equity joint venture
B) global sourcing
C) project-based (nonequity) collaborative venture
D) wholly owned subsidiary (FDI)

Question 47

Which of the following is an example of a pull factor for a focal firm?

A) arriving at the mature phase in a product's life cycle
B) declining demand in the home market
C) foreign government incentives
D) increasing competition in the home market

Question 48

Focal firms that internationalize through exporting will most likely perform ________ in the home market.

A) sales
B) distribution
C) marketing
D) manufacturing

Question 49

Which of the following is an example of a push factor for a focal firm?

A) foreign government incentives
B) increasing competition in the home market
C) collaborative venture with a competitor in the foreign market
D) increasing demand in the home market

Question 50

Which of the following questions is most likely to be addressed as firms organize for exporting?

A) Which market offers the most opportunities to the firm for profit and expansion?
B) Which domestic and foreign retailers will probably purchase the firm's products?
C) How much should the firm rely on intermediaries to carry out exporting?
D) How to adapt pricing and marketing strategies to suit the foreign market?

Question 51

Which of the following is an advantage of exporting?

A) It allows focal firms to attain maximum control by establishing ownership of key assets in the foreign market.
B) It is a high-control strategy that requires substantial resource commitment when compared to equity joint ventures.
C) It minimizes exposure to tariffs and other trade barriers, as well as fluctuations in exchange rates.
D) It increases overall sales volume, improves market share, and reduces per-unit costs of manufacturing.

Question 52

Which of the following is most likely a disadvantage to firms who use exporting as an entry strategy?

A) high cost of foreign market entry
B) difficulties withdrawing from foreign markets
C) high risk of low sales due to fluctuations in exchange rates
D) high risk due to uncertainty in the political environment of the foreign market

Question 53

Which of the following actions most likely occurs in the experimental involvement stage of internationalization?

A) Managers open franchises within an economic bloc to gain valuable experience.
B) Management aggressively targets the domestic market to take control over competitors.
C) Managers target low-risk, culturally close markets through exporting or licensing.
D) Management targets psychically close markets through collaborative ventures or FDI.

Question 54

Which of the following services cannot be exported?

A) travel
B) education
C) health care
D) construction

Question 55

Which of the following is true about FDI?

A) A focal firm makes minimum resource commitment as domestic firms take most of the financial responsibilities.
B) A focal firm establishes a relatively permanent base in the foreign market, which increases flexibility for market and company conditions.
C) A focal firm attains decreased risk due to the certainty in the foreign business environment.
D) A focal firm attains maximum control by establishing a physical presence in the foreign market.

Question 56

A risk-averse manager at a Canadian firm would most likely pursue initial internationalization in ________.

A) the United States
B) China
C) India
D) Russia

Question 57

Which of the following is the first stage of internationalization?

A) experimental involvement
B) domestic market focus
C) pre-internationalization
D) active involvement

Question 58

During the global market opportunity assessment phase, managers will most likely ________.

A) visit countries to determine customer needs and government regulations
B) perform a test-run by exporting a small amount of products to potential markets
C) send out a survey to foreign suppliers and distributors to learn about the culture
D) collaborate with another trading company for a short period of time

Question 59

In the ________ stage of internationalization, a firm's critical management activity would be to allocate resources based on available international business opportunities.

A) experimental involvement
B) committed involvement
C) active involvement
D) pre-internationalization

Question 60

________ will internationalize via FDI because they require direct contact with customers.

A) Insurance firms
B) Accountants
C) Construction firms
D) Retailing firms

Question 61

Which of the following is a characteristic of direct exporting?

A) exporter uses few corporate resources and personnel
B) exporter develops a closer relationship with foreign buyers
C) exporter contracts with domestic intermediaries
D) exporter delegates responsibility of finding buyers

Question 62

Incoterms were developed by the International Chamber of Commerce in order to ________.

A) provide permission to export
B) standardize the cost of shipping and insuring exported items
C) define how the buyer and seller share freight and insurance costs
D) reduce the costs of shipping and insuring exported products

Question 63

Which of the following statements is true about managing export-import transactions?

A) The commercial invoice is the basic contract between exporter and shipper.
B) National governments sometimes require exporters to obtain license due to national security policy.
C) Incoterms is the "birth certificate" of the goods being shipped and indicates the country of origin.
D) Export declaration lists a set of universally accepted terms of sale that specify how the buyer and seller share freight and insurance costs.

Question 64

The World Bank Group is an example of a ________.

A) factoring house
B) government assistance program
C) multilateral development bank
D) commercial bank

Question 65

Organic Towel Exports (Scenario)
The Organic Towel Company (OTC) employs 400 workers at its facility in Liverpool, England, where the firm has been manufacturing 100% organic cotton towels for five years. OTC sells towels in the United Kingdom primarily to boutique hotels and specialty retail stores, as well as to individual consumers through the company's . Recently, OTC managers attended a trade show in London where they made contact with numerous foreign market managers. OTC received a request from Earth Waves, an organic clothing store in Toronto, Canada, for a large order of towels. OTC had not been looking into expanding, but firm managers are seriously considering the opportunity to reach a global niche market with their towels.
Which of the following most strongly suggests OTC should not export its towels to Earth Waves?

A) OTC managers are risk-takers with the determination to expand OTC.
B) OTC's towel manufacturing at the Liverpool facility is nearing maximum capacity.
C) Earth Waves has a large client base and publishes a semi-annual catalog.
D) Earth Waves has offered to guide OTC through Canadian regulations.

Question 66

Which of the following activities is applicable to the final stage of exporting?

A) The firm engages appropriate bankers and international trade attorneys.
B) The firm screens the most attractive export markets.
C) The firm modifies advertising and public relations to suit individual markets.
D) The firm acquires product development and foreign language skills.

Question 67

Company-owned subsidiary is ________.

A) accomplished by contracting with intermediaries located in the firm's home market
B) typically achieved by contracting with intermediaries located in the foreign market
C) a foreign intermediary that serves as an extension of the exporter, negotiating on behalf of the exporter and assuming such responsibilities as local supply-chain management, pricing, and customer service
D) a representative office of the focal firm that handles marketing, physical distribution, promotion, and customer service activities in the foreign market

Question 68

Organic Towel Exports (Scenario)
The Organic Towel Company (OTC) employs 400 workers at its facility in Liverpool, England, where the firm has been manufacturing 100% organic cotton towels for five years. OTC sells towels in the United Kingdom primarily to boutique hotels and specialty retail stores, as well as to individual consumers through the company's . Recently, OTC managers attended a trade show in London where they made contact with numerous foreign market managers. OTC received a request from Earth Waves, an organic clothing store in Toronto, Canada, for a large order of towels. OTC had not been looking into expanding, but firm managers are seriously considering the opportunity to reach a global niche market with their towels.
Which of the following should be considered first in making the decision to export OTC towels to Canada?

A) What is the probability of OTC and Earth Waves entering into a joint venture?
B) How much fluctuation occurs in the exchange rate between the Canadian dollar and the British pound?
C) What is the likelihood of Earth Waves opening a subsidiary in Canada?
D) What documentation would be required for OTC to export towels to Asia?

Question 69

Organic Towel Exports (Scenario)
The Organic Towel Company (OTC) employs 400 workers at its facility in Liverpool, England, where the firm has been manufacturing 100% organic cotton towels for five years. OTC sells towels in the United Kingdom primarily to boutique hotels and specialty retail stores, as well as to individual consumers through the company's . Recently, OTC managers attended a trade show in London where they made contact with numerous foreign market managers. OTC received a request from Earth Waves, an organic clothing store in Toronto, Canada, for a large order of towels. OTC had not been looking into expanding, but firm managers are seriously considering the opportunity to reach a global niche market with their towels.
Which of the following most likely supports OTC exporting their towels to Earth Waves?

A) Domestic sales of OTC towels have dwindled, and a new market is needed.
B) Earth Waves is located in an excellent location in central Toronto.
C) OTC is an SME that can readily adapt to the demands of the Canadian market.
D) The founder of OTC has numerous contacts in Canada.

Question 70

Prox Inc. is a U.S.-based manufacturer of consumer electronics. It decides to export to Mexico and wants to protect its goods against damage, loss, and pilferage. Which of the following documents is applicable here?

A) insurance certificate
B) bill of lading
C) pro forma invoice
D) license

Question 71

Which of the following is the LEAST secure method of getting in international business?

A) letter of credit
B) open account
C) countertrade
D) cash in advance

Question 72

The top trading partner for the European Union is ________.

A) Norway
B) Mexico
C) China
D) Russia

Question 73

Organic Towel Exports (Scenario)
The Organic Towel Company (OTC) employs 400 workers at its facility in Liverpool, England, where the firm has been manufacturing 100% organic cotton towels for five years. OTC sells towels in the United Kingdom primarily to boutique hotels and specialty retail stores, as well as to individual consumers through the company's . Recently, OTC managers attended a trade show in London where they made contact with numerous foreign market managers. OTC received a request from Earth Waves, an organic clothing store in Toronto, Canada, for a large order of towels. OTC had not been looking into expanding, but firm managers are seriously considering the opportunity to reach a global niche market with their towels.
Which of the following documents is the contract between the shipping company and the exporter?

A) pro forma invoice
B) bill of lading
C) export declaration
D) commercial invoice

Question 74

________ is the selling, at a discount, of long-term accounts receivable of the seller or promissory notes of the foreign buyer.

A) Forfaiting
B) Countertrading
C) Confirming
D) Factoring

Question 75

________ is the discounting of a foreign account receivable by transferring title of the sold item and its account receivable to an organization-that specializes in purchasing accounts receivable-for cash at a discount from the face value.

A) Confirming
B) Countertrading
C) Forfaiting
D) Factoring

Question 76

Which of the following methods of payment is the LEAST popular among foreign buyers?

A) cash in advance
B) sight draft
C) consignment sales
D) countertrade

Question 77

Buying products and services from foreign sources and bringing them into the home market is called ________.

A) exporting
B) global sourcing
C) global bartering
D) offshoring

Question 78

Organic Towel Exports (Scenario)
The Organic Towel Company (OTC) employs 400 workers at its facility in Liverpool, England, where the firm has been manufacturing 100% organic cotton towels for five years. OTC sells towels in the United Kingdom primarily to boutique hotels and specialty retail stores, as well as to individual consumers through the company's . Recently, OTC managers attended a trade show in London where they made contact with numerous foreign market managers. OTC received a request from Earth Waves, an organic clothing store in Toronto, Canada, for a large order of towels. OTC had not been looking into expanding, but firm managers are seriously considering the opportunity to reach a global niche market with their towels.
Which of the following questions must be evaluated by OTC managers as a first step to exporting?

A) What are the risks involved in exporting OTC towels to Earth Waves?
B) Do Canadian towel companies have a high success rate when they export?
C) Will OTC save money on domestic marketing by exporting?
D) How can OTC adapt its distribution strategy in Canada?

Question 79

Which of the following statements is true about open account?

A) It is the most preferred method of payment in international business.
B) Exporters can sell any open accounts in their possession, to avoid having to wait weeks or months to be paid for their exports.
C) Exporters use this approach only with customers of long-standing or excellent credit, or with a subsidiary owned by the exporter because of the risk involved.
D) It is a contract between the banks of the buyer and seller that ensures payment from the buyer to the seller upon receipt of an export shipment.

Question 80

Which of the following makes a letter of credit the most popular method of payment in export transactions?

A) the exporter cannot sell any letters of credit in its possession
B) the method requires a limited amount of documentation and is easy to cancel
C) the exporter bills customers with strong credit ratings
D) the interests of the seller and buyer are protected simultaneously