Deck 15: Direct Investment and Collaborative Strategies

Question 1

There are two ways companies can invest in a foreign country.They can either acquire an interest in an existing operation or construct new facilities.In a short essay, describe the advantages and disadvantages of each alternative.

Answer 1

a.Reasons for buying: There are many reasons for seeking acquisitions.One is the difficulty of transferring some resource to a foreign operation or acquiring that resource locally for a new facility.Foreign companies may find it difficult to hire, especially if local unemployment is low.Instead of paying higher compensation than competitors do to entice employees away from their old jobs, a company can buy an existing company, which gives the buyer not only labor and management but also an existing organizational structure.Through acquisitions, a company may also gain the goodwill and brand identification important to the marketing of mass consumer products, especially if the cost and risk of breaking in a new brand are high.Further, a company that depends substantially on local financing rather than on the transfer of capital may find it easier to gain access to local capital through an acquisition.Local capital suppliers may be more familiar with an ongoing operation than with the foreign enterprise.This may also prevent excess capacity within the market.
b.Reasons for building: Although acquisitions offer advantages, a potential investor will not necessarily be able to realize them.Companies frequently make foreign investments where there is little or no competition, so finding a company to buy may be difficult.In addition, local governments may prevent acquisitions because they want more competitors in the market and fear market dominance by foreign enterprises.Even if acquisitions are available, they may be less likely to succeed than start-up operations.The acquired companies might have substantial problems.Further, the managers in the acquiring and acquired companies may not work well together.Finally, a foreign company may find local financing easier to obtain if it builds facilities, particularly if it plans to tap development banks for part of its financial requirements.

Question 2

According to the appropriability theory and the internalization theory, why would companies want to control their foreign operations?

Answer 2

Control is important to foreign companies because they may want to do what is best for their global operations rather than what is best for the operations of a specific country.Companies are reluctant to transfer vital resources-capital, patents, trademarks, and management know-how-to another organization that can make all of its operating decisions independently.The company receiving these resources can use them to undermine the competitive position of the foreign company transferring them.The idea of denying rivals access to resources is called the appropriability theory.The control through self-handling of operations (internal to the organization)is internalization, which may save transaction costs.

Question 3

Coca-Cola collaborates extensively abroad, but it refuses collaboration that might imperil control of its core competency.As a result, which of the following is NOT one of its international collaborative forms?

A)sharing ownership in the production of its secret formula concentrate
B)using franchisers to bottle, sell, and deliver Coke beverages
C)licensing Coke's trademark for use on products in which it lacks skills
D)forming joint ventures with companies that provide supplies for Coke products

Answer 3

A

Question 4

Appropriability theory refers to ________.

A)denying rivals access to competitive resources such as management know-how
B)categorizing the appropriateness of a firm's foreign investments in terms of host country objectives
C)explaining an investing firm's choice of partner in a joint venture
D)predicting the general pattern of direct investment locations

Question 5

Governments sometimes prohibit foreign acquisitions because they fear market dominance by foreign enterprises.

Question 6

A company that makes a foreign investment largely to acquire knowledge is most likely to use ________ as a means of expansion.

A)a greenfield investment
B)internalization
C)an acquisition
D)a licensing agreement

Question 7

A U.S.firm owns 100% of its production facility in Brazil; thus it is most likely using a(n)________ strategy.

A)comprehensive ownership
B)vertical integration
C)appropriability
D)internalization

Question 8

Why can a company more easily pursue a global strategy when it owns 100 percent of foreign operations?

A)The company is not likely to face overcapacity issues.
B)The company limits foreign-exchange rate fluctuations.
C)The company avoids communication misunderstandings.
D)The company can sub-optimize results in one country in order to optimize results globally.

Question 9

A greenfield investment is another name for a company's decision to ________.

A)acquire an interest in an existing foreign operation
B)implement sustainable marketing practices
C)construct a new facility in a foreign market
D)build a facility for a local company

Question 10

A U.S.firm is acquiring an existing company in Germany rather than starting up a new foreign operation.Which of the following statements best supports this decision?

A)Because the German firm is performing poorly, there is a good turn-around opportunity.
B)The U.S. firm's U.S. facility is working at capacity.
C)Stock market prices have been very high in Germany.
D)The German firm has skilled personnel that the U.S. firm cannot hire at a good price on its own.

Question 11

A U.S.firm plans to shift from exporting to production in China to serve the Chinese market.Which of the following statements would best explain this decision?

A)China's currency is appreciating relative to the U.S. dollar.
B)The firm is nearing capacity utilization in its U.S. plant.
C)The company need not alter its products for the Chinese market.
D)Transportation costs have become low relative to production costs.

Question 12

Executives at a U.S.firm are debating whether to start a new operation in Russia or acquire an existing one.Which of the following factors best supports a decision to start up a new operation in Russia?

A)The Russian government places restrictions on the outward transfer of foreign capital.
B)Labor relations at existing Russian firms are poor and difficult to change.
C)Russia's currency is weak and stock market prices are significantly depressed.
D)Existing companies have goodwill and positive brand recognition in Russia.

Question 13

Appropriability theory describes a firm's desire to deny rivals access to its competitive resources.

Question 14

In a short essay, discuss how transportation, trade restrictions, domestic capacity, and country-of-origin affect companies' decisions about modes of operating internationally.

Question 15

Which of the following is the LEAST likely reason that consumers would prefer domestically made products over imports?

A)belief that imports are subsidized
B)feelings of national pride and sentiment
C)negative associations with products from certain countries
D)concerns that parts will be difficult to obtain for foreign products

Question 16

Wholly owned operations abroad inhibit a company's ability to pursue a global strategy.

Question 17

A U.S.firm with a production facility in Brazil uses its own personnel to handle almost all activities because their outsourcing would be too costly and inefficient.Its internalization will most likely lead to cost savings because the firm can avoid ________.

A)costly customs brokers
B)high, fixed start-up costs
C)the costs of enforcing an agreement
D)sharing profits

Question 18

Exporting is usually more feasible when transportation costs are high rather than low in relation to production costs.

Question 19

Foreign acquisitions are more advantageous than start-ups when the industry has little excess capacity than when it has a lot of excess capacity.

Question 20

Small economies are sometimes less successful than large countries in attracting FDI by raising import restrictions.What is the most likely reason for this?

A)Large economies impose higher trade restrictions.
B)Transportation costs are generally higher in small economies.
C)People in small economies are more nationalistic in their purchases.
D)Small economies frequently lack sufficient markets for large-scale production.

Question 21

Chrysler granted South East Motor (a company in China)rights to produce its Grand Voyager minivan for sale in China in exchange for a fee.This is an example of a ________.

A)licensing agreement
B)bargaining school arrangement
C)technology appropriation
D)turnkey operation

Question 22

Collaborative agreements allow companies to specialize more in those activities that best fit their competencies.

Question 23

What is the primary reason for technology licensing to take place while a product is still in the developmental stage?

A)to enable the licensor to receive some earnings in case the technology never becomes operative
B)to ensure that a product launches in various countries at about the same time
C)to gain funds to complete the development
D)to reduce transaction costs

Question 24

Which of the following is NOT one of the arguments for governments to limit foreign control of key industries?

A)Host countries don't need foreign resources such as technology and export markets for these industries.
B)History shows that home governments have used powerful foreign companies to influence policies in the countries where they operate.
C)Important decisions can be made abroad that are contrary to the country's best interest.
D)Foreign companies can find means of profiting in these industries without having to control them.

Question 25

Risk is an important factor for companies engaged in international business.One way a collaborative arrangement helps minimize risk when operating abroad is by ________.

A)reducing the possibility of technological appropriation
B)freeing up resources so a company can diversify into more countries
C)preventing the entry of new competitors
D)eliminating losses from exchange rate depreciation abroad

Question 26

The more a company engages in collaborative agreements, the more it loses control over decisions and their implementation.

Question 27

What is a key industry?

A)an industry that is locked up competitively by domestic producers
B)a turnkey operator specializing in the construction of infrastructure components
C)an industry that receives government subsidies
D)an industry that significantly affects the economy by virtue of its size or influence on other sectors

Question 28

Which of the following is an example of an exclusive license agreement?

A)Three licensees have worldwide rights to sell the product worldwide for three years, during which time no other companies can use the asset.
B)The licensee is currently the only company using the intangible property, but the licensor has rights to add other licensees.
C)One licensee gets rights for the north island of New Zealand, a second licensee gets rights for the south island of New Zealand, and the licensor agrees to add no new licensees to New Zealand for the next five years.
D)The licensee and licensor use the property in the same market.

Question 29

What are the various types of collaborative arrangement options available to international businesses? How can firms most effectively manage international collaborative arrangements?

Question 30

Which of the following describes a cross-licensing agreement?

A)allocation of exclusive rights to a licensee to prevent competition
B)an agreement between two or more companies not to compete in each other's home countries
C)an exchange of explicit knowledge for tacit knowledge
D)the exchange of intangible property rights between two or more companies

Question 31

Which of the following is an argument for using a collaborative agreement?

A)to prevent problems caused by minority shareholders
B)to preserve a concentration strategy
C)to secure vertical and horizontal links
D)to maintain better control

Question 32

In which of the following situations would Company X most likely seek a collaborative arrangement with Company Z in which Company Z would handle work for Company X?

A)Company X has excess capacity.
B)Fixed costs for the work are high, and Company X has large volumes of work.
C)Company X is inexperienced in outsourcing work.
D)Fixed costs for the work are high, and Company X has small volumes of work.

Question 33

What is an equity alliance? What motives would a firm have for forming an equity alliance?

Question 34

What motives do businesses have for entering into collaborative arrangements? What are some of the problems associated with collaborative arrangements?

Question 35

An advantage of collaborative agreements is the ability to spread faster geographically.

Question 36

Coca-Cola has collaborative arrangements whereby it produces concentrate that it sells to other companies to bottle its drinks.Which of the following terms best describes this type of arrangement?

A)vertical alliance
B)horizontal alliance
C)link alliance
D)scale alliance

Question 37

In which of the following situations is a firm most likely to be able to choose the foreign operating form it would most like to use?

A)Its main motive is to gain location-specific assets.
B)It has a desired and unique resource.
C)Its preference for entering foreign markets is via acquisition of foreign facilities.
D)It has little concern about appropriability.

Question 38

Which of the following is NOT one of the arguments for permitting foreign control of key industries?

A)Managers, whether in a foreign or local company, make decisions based on what they think is best for the company rather than based on some local socioeconomic agenda.
B)MNEs staff their organizations abroad mainly with local nationals and depend in part on their input for making decisions.
C)Foreign governments can no longer use their home-based companies to influence policies abroad.
D)The security arguments for restrictions on foreign ownership are really just a sham to protect politically powerful industries and employment.

Question 39

Dependencia theory holds that ________.

A)countries should seek to diversify their economies
B)low-income countries have practically no power in dealings with MNEs
C)in a globalized world, no nation can be independent economically or politically
D)there is a natural division of labor whereby developing countries depend on production using fairly unskilled labor and developed countries depend on highly educated workers

Question 40

The more a company engages in international collaborative arrangements as opposed to wholly owned foreign operations, the more it is likely to ________.

A)decrease its exposure to political risk
B)increase its control over foreign operations
C)learn rapidly about foreign environments
D)protect its core assets

Question 41

What is an international joint venture?

A)an international agreement between two or more companies to have access to each other's patents
B)the ownership of a company by two or more companies, of which at least one is a foreign company where the venture is located
C)an international agreement between two or more firms for the use of a trademark
D)an agreement between two or more organizations to share management expertise

Question 42

Which of the following firms would most likely be involved in a turnkey operation?

A)American Airlines
B)Bechtel Construction
C)Burger King
D)Microsoft

Question 43

What is a consortium?

A)the ownership of a company by a government and a foreign company
B)an agreement signed by most governments to protect intellectual property rights
C)an international joint venture owned by at least three organizations
D)an agreement between two or more governments to provide for reciprocal foreign investment protection

Question 44

All of the following would be examples of international joint ventures EXCEPT ________.

A)two Japanese companies sharing ownership of a company in Canada
B)a Danish company sharing ownership with a South African company in South Africa
C)a government-owned company from China sharing ownership with an Australian company in Panama
D)two Venezuelan companies sharing ownership of a company in Venezuela

Question 45

What is an equity alliance?

A)a collaborative arrangement in which at least one collaborating company takes an ownership position in the other
B)a collaboration in which each contributor receives an equitable return based on relative contribution
C)a collaboration in which partners agree to share technology with each other
D)a wholly owned acquisition to prevent appropriation of intellectual property

Question 46

The advantage to host countries of international management contracts is that they ________.

A)receive state-of-the-art facilities
B)get assistance without foreign control
C)can pay in local currency
D)save on making capital investments

Question 47

Licensing companies commonly negotiate a "front-end" payment from licensees to cover ________ transfer costs.

A)employee
B)brand name
C)technology
D)copyright

Question 48

The dependencia theory holds that the terms for a foreign investor's operations depend on how much the investor and the host country need each other's assets.

Question 49

Licenses are often given to companies owned in whole or in part by the licensor.

Question 50

Hotel chains are large providers of international management services through collaborative operations.All of the following are reasons for this EXCEPT which one?

A)Some governments have restricted foreign ownership in hotels.
B)Local hotel owners may be very knowledgeable about real estate, but know little about hotel operations.
C)Local companies can forgo making a capital investment.
D)Hotel chains can offer global brand recognition.

Question 51

In a licensing arrangement, it is rare for companies to agree to a front-end payment to cover technology transfer costs.

Question 52

Patents, copyrights, and trademarks are all examples of property rights that may be licensed to one company from another.

Question 53

For the provider, management contracts offer the advantage of ________.

A)receiving income without making a capital outlay
B)increasing their merchandise exports
C)reducing their global taxes
D)better access to raw materials

Question 54

Metro Hotels, a U.S.hotel chain, has transferred several of its employees to Myanmar where they will work for three or four years before returning to the United States.The employees will be working with a Myanmar hotel to provide it with their extensive knowledge regarding how to run a hotel.Metro is most likely involved in a ________.

A)franchise
B)turnkey operation
C)joint venture
D)management contract

Question 55

An argument for limiting foreign control of key industries is that decisions made abroad can have adverse effects on the local economy.

Question 56

A licensing agreement is a contract for the granting of rights on tangible property.

Question 57

What is a turnkey operation?

A)a contract for a large construction project, often for a government agency
B)a contract with a government to service one of its key industries
C)the buying of another company
D)the repatriation of equity

Question 58

Why do turnkey operators often require a feasibility study as part of the contract?

A)By adding to the cost, they earn more money.
B)This lessens the risk of contract cancellation when political leadership changes.
C)This lowers their risk of foreign-exchange losses.
D)This helps to define what constitutes "satisfactory completion" of the project.

Question 59

What is a master franchise?

A)the original agreement between the franchisor and franchisee
B)the franchisee with the highest revenue in a region
C)a franchisee with rights to open outlets on its own or develop subfranchises
D)the set of standard terms regulating the relationship between franchisor and franchisee

Question 60

Judson Baked Goods, a U.S.firm, grants the use of its trademark to a company in Sweden and provides the Swedish company with operational assistance on a continuing basis.Judson is most likely involved in ________.

A)a management contract
B)franchising
C)offshoring
D)appropriability

Question 61

When a company wants to be compensated in a foreign subsidiary beyond its contribution in capital and managerial resources, it often ________.

A)licenses intangible property to its subsidiary
B)negotiates a special agreement with the host government
C)establishes a management contract
D)sets up an equity alliance

Question 62

Tom, a manager at an MNE, has been given the task of identifying a pool of companies with which the firm might form collaborative arrangements.Which of the following activities would be LEAST useful for Tom?

A)attending technical conferences
B)monitoring industry journals
C)attending trade fairs
D)constructing turnkey facilities

Question 63

When no single company has control over a collaborative arrangement, ________.

A)the operation may lack direction
B)none of the partners is responsible for legal violations
C)differences in corporate culture are likely to grow
D)one partner's interests are likely to be put ahead of the other partner's interests

Question 64

When a company's primary motive for entering a collaborative arrangement is to learn from its partner, it is likely to ________.

A)leave control to its partner
B)"go it alone" after it has learned what it needs to know
C)have disagreements with the partner over quality issues
D)prefer the arrangement to be a licensing agreement

Question 65

Turnkey projects generally differ from other forms of international business in that ________.

A)they tend to be smaller
B)customers are more likely private companies
C)they are more often located in remote areas
D)they depend almost entirely on acquisitions rather than greenfield operations

Question 66

A turnkey operation is a contract for the construction of an operating facility for a fee.

Question 67

An international management contract is an agreement between a company and a foreign government on the number of foreign personnel it can employ.

Question 68

What is a turnkey operation? What features generally make turnkey operations different from other collaborative arrangements?

Question 69

When a large company and a small company enter a collaborative arrangement, ________.

A)the large company is expected to contribute more to the arrangement
B)the large company is likely to be more active in the venture
C)the small company is more likely to view the collaboration's expansion as competition to itself
D)the small company is likely to be disadvantaged if legal action is necessary to solve a dispute

Question 70

The use of management contracts has been significant in hotel operations.

Question 71

Explain how franchising agreements differ from licensing agreements.

Question 72

When a large company and a small company enter a joint venture, the large company is expected to contribute more to the arrangement.

Question 73

Which of the following is LEAST likely to trigger the breakup of a joint venture?

A)The partners place a different degree of importance on the joint venture.
B)The partners develop different capabilities to contribute to the joint venture.
C)The partners come from different industries.
D)Objectives evolve differently over time.

Question 74

An international joint venture is an agreement between two or more companies for the use of a trademark.

Question 75

Few turnkey projects to date have been in remote areas of the world.

Question 76

An agreement for the use of a trademark and assistance with business operations is known as a cross-licensing agreement.

Question 77

What is the difference between licensing and cross-licensing? What factors do firms need to consider before entering into licensing agreements?

Question 78

When entering foreign countries, many franchisors encounter difficulty in transferring the domestic success factors of product and service standardization.

Question 79

The more partners in a joint venture, the more complex the management of the arrangement will be.

Question 80

Lesser-known franchisors sometimes enter foreign countries with company-owned outlets.A reason for doing this is to ________.

A)guarantee profits
B)avoid competition
C)compete with local stores
D)attract potential franchisee