Deck 13: Selecting and Managing Entry Modes

Question 1

What is the first step in selecting a foreign market?

A) identification of potential market
B) monitoring major markets
C) evaluating host country's trade policies
D) assessing general legal and political environments

Answer 1

A

Question 2

The export of industrial equipment in return for products produced by that equipment is called ________.

A) barter
B) franchising
C) offset
D) buyback

Answer 2

D

Question 3

Scenario: Owen's HomeCare Products
Owen McCain, owner of Owen's HomeCare Products, is considering going international. He feels that the products he manufactures will be well-received, especially in developing countries. He wants to understand the exporting process and then scale his exporting activities accordingly.
Through his research,Owen learns that the first step in developing a successful export strategy is ________.

A) initiation of meetings with intermediaries
B) identification of a potential market
C) commitment of resources
D) matching of market needs to company abilities

Answer 3

B

Question 4

________ is a countertrade whereby one company sells to another its obligation to make a purchase in a given country.

A) Franchising
B) Joint venture
C) Switch trading
D) Barter

Question 5

________ is the most common form of international business activity.

A) Exporting
B) Licensing
C) Countertrade
D) Joint Venture

Question 6

Which of the following allows a country to earn back some of the currency it pays out for imports?

A) switch trading
B) counterpurchase
C) buyback
D) barter

Question 7

Which of the following is an advantage of exporting?

A) vulnerability to tariffs
B) logistical complexities
C) potential conflicts with distributors
D) access to new markets

Question 8

________ occur(s)when a firm sells its products to a domestic customer,which in turn exports the product,in either its original form or a modified form.

A) Indirect exporting
B) Direct exporting
C) Intercorporate transfers
D) Intracorporate transfers

Question 9

________ refers to any one of several different arrangements that business parties negotiate so that they can trade goods for good,primarily with countries that have limited amounts of foreign exchange.

A) Factoring
B) Offset
C) Countertrade
D) Barter

Question 10

Which of the following statements is true of countertrade?

A) Countertrade is practiced by countries when there is a lack of hard currency.
B) Countertrade involves products whose prices on world markets tend to remain steady.
C) Countertrade usually involves industrial products and computer softwares.
D) Hedging risk in countertrade is prohibited.

Question 11

Scenario: Owen's HomeCare Products
Owen McCain, owner of Owen's HomeCare Products, is considering going international. He feels that the products he manufactures will be well-received, especially in developing countries. He wants to understand the exporting process and then scale his exporting activities accordingly.
Which of the following steps would Owen implement toward the end while developing a successful export strategy?

A) initiation of meetings with intermediaries
B) identification of a potential market
C) commitment of resources
D) matching of market needs to company abilities

Question 12

An offset agreement differs from a counterpurchase agreement in that an offset agreement ________.

A) fails to specify the type of product that must be purchased
B) fails to specify the amount that will be spent on the purchase
C) fails to give a business greater freedom in fulfilling its end of a countertrade deal
D) fails to make a hard-currency purchase of any product from that nation in the future

Question 13

Which of the following steps of the strategy development process for exports involves establishing relationships with potential local distributors?

A) identification of a potential market
B) match market needs to the company's abilities
C) initiation of meetings
D) commitment of resources

Question 14

Buyback is defined as ________.

A) the export of industrial equipment in return for products produced by that equipment
B) an agreement that a company will offset a hard-currency sale to a nation by making a hard-currency purchase of an unspecified product from that nation in the future
C) the sale of goods or services to a country by a company that promises to make a future purchase of a specific product from that country
D) the exchange of goods or services for a certain amount of money

Question 15

Scenario: Owen's HomeCare Products
Owen McCain, owner of Owen's HomeCare Products, is considering going international. He feels that the products he manufactures will be well-received, especially in developing countries. He wants to understand the exporting process and then scale his exporting activities accordingly.
If Owen's HomeCare Products decides to sell their products to intermediaries who then resell them to buyers in target markets,the company would be engaging in ________ and use the services of an Export Management Company (EMC).

A) indirect exporting
B) counterpurchase
C) an acquisition
D) a joint venture

Question 16

A company proposes that in exchange for a hard-currency sale,it will make a hard-currency purchase of an unspecified product from the buyer nation in the future.Which of the following is the company proposing?

A) a counterpurchase
B) an offset
C) a buyback
D) a barter

Question 17

The sale of goods and services to a country by a company that promises to buy a specific product from that country in the future is called a(n)________.

A) counterpurchase
B) offset
C) joint venture
D) barter

Question 18

Which of the following steps of the strategy development process for exports involves performing market research and interpreting results obtained from the research?

A) identification of a potential market
B) match needs of the market to the company's abilities
C) initiation of meetings
D) commitment of resources

Question 19

Which of the following is a strategic factor that influences a company's international entry mode selection?

A) market consumption capacity
B) market receptivity
C) market size
D) market intensity

Question 20

Which of the following is true of distributors?

A) The use of distributors increases the exporter's control over the price buyers are charged.
B) They are compensated with a fixed salary plus commissions based on the value of their sales.
C) They are seldom required to take ownership of the merchandise when it enters their country.
D) They can stunt the growth of the exporter's market share by charging very high prices.

Question 21

Why would an exporter use a sales representative or a distributor? Why would the exporter be reluctant to offer an open account payment method?

Question 22

What is countertrade? Explain the concept of buyback as a type of countertrade,and discuss buyback as a joint venture configuration.

Question 23

Distributors are firms who take ownership of the merchandise when it enters their country.

Question 24

________ take ownership of the merchandise when it enters their country and accept all the risks associated with generating local sales.

A) Agents
B) Distributors
C) Sales representatives
D) Freight forwarders

Question 25

A(n)________ exports products on behalf of an indirect exporter.

A) local distributor
B) subsidiary
C) sales representative
D) export management company

Question 26

A confirmed letter of credit is guaranteed by both the exporter's bank in the country of export and the importer's bank in the country of import.

Question 27

Agency relationships are popular among exporters because they are easy to terminate should difficulties arise.

Question 28

Direct exporting is when a company sells its products directly to buyers in a target market.Indirect exporting occurs when a company sells its products to intermediaries who then resell to buyers in a target market.

Question 29

Companies can achieve economies of scale in production by expanding into international markets.

Question 30

Buyback is the export of industrial equipment in return for products produced by that equipment.

Question 31

Letters of credit are popular among traders because it reduces the risk of non-shipment.

Question 32

Commonly licensed intangible property includes patents,copyrights,special formulas and designs,trademarks,and brand names.

Question 33

Scenario: Wang's Techno Toys
Ann Wang has been successfully running Wang's Techno Toys that sells high-tech toys in the domestic market. Continually increasing and stiff competition at home has now forced Wang's Techno Toys to enter international markets through direct exports.
Which of the following will most likely help Techno Toys sell its toys directly to buyers in the target market?

A) agents
B) sales representatives
C) export management companies
D) export trading companies

Question 34

Countertrade provides a way for firms to trade either by using a small amount of hard currency or even none at all.

Question 35

Typically,indirect exporting relies on local sales representatives or distributors.

Question 36

Explain why companies consider exporting.Describe the four-step model of developing a successful export strategy.

Question 37

Countertrade is not an option for smaller companies because of the cash outlays involved.

Question 38

The most common method used for buying and selling goods internationally is exporting.

Question 39

Scenario: Wang's Techno Toys
Ann Wang has been successfully running Wang's Techno Toys that sells high-tech toys in the domestic market. Continually increasing and stiff competition at home has now forced Wang's Techno Toys to enter international markets through direct exports.
Which of the following occurs when a company sells its products to buyers in a target market without going through intermediary companies?

A) direct export
B) indirect export
C) contract manufacturing
D) licensing

Question 40

Most large companies use exporting to increase sales and open up new markets when the domestic market has become saturated.

Question 41

A ________ extends credit to the importer by requiring payment at some specified time after the importer receives the goods.

A) sight draft
B) time draft
C) bill of lading
D) bill of exchange

Question 42

Export/import financing in which a bank acts as an intermediary without accepting financial risk is called ________.

A) documentary collection
B) counterpurchase
C) buyback
D) open account

Question 43

Advance payment is commonly used for export/import financing when ________.

A) two parties are unfamiliar with each other
B) the buyer has obtained credit for the transaction
C) the transaction is for a relatively high amount
D) the buyer has good credit rating at banks

Question 44

Companies involved in direct exporting typically rely on ________.

A) distributors
B) agents
C) export management companies
D) All of the above

Question 45

Letters of credit are popular among traders because the risk of non shipment are assumed by ________.

A) distributors
B) importers
C) exporters
D) banks

Question 46

Scenario: Wang's Techno Toys
Ann Wang has been successfully running Wang's Techno Toys that sells high-tech toys in the domestic market. Continually increasing and stiff competition at home has now forced Wang's Techno Toys to enter international markets through direct exports.
Which of the following methods of export/import financing is Techno Toys' bank using if it acts as an intermediary without accepting financial risk?

A) documentary collection
B) buyback
C) letter of credit
D) advance payment

Question 47

Martin Exporting requests ABC Bank to add its own guarantee of payment to a letter of credit,which creates a(n)________.

A) advised letter of credit
B) confirmed letter of credit
C) irrevocable letter of credit
D) unconfirmed letter of credit

Question 48

Which of the following is a method of export/import financing in which the importer's bank issues a document stating that the bank will pay the exporter when the exporter fulfills the terms of the document?

A) sight draft
B) bill of lading
C) letter of credit
D) bill of exchange

Question 49

Export/import financing in which an exporter ships merchandise and later bills the importer for its value is called ________.

A) advance payment
B) open account
C) a letter of credit
D) documentary collection

Question 50

Which of the following letters of credit can be modified without obtaining approval from either the exporter or the importer,by the bank issuing the letter of credit?

A) revocable letter of credit
B) confirmed letter of credit
C) at sight letter of credit
D) irrevocable letter of credit

Question 51

Which of the following financing methods entails the lowest risk for exporters?

A) supersedeas bond
B) advance payment
C) letter of credit
D) open account

Question 52

A(n)________ is guaranteed by both the exporter's bank in the country of export and the importer's bank in the country of import.

A) confirmed letter of credit
B) transferrable letter of credit
C) revocable letter of credit
D) irrevocable letter of credit

Question 53

Which of the following financing methods entails the greatest risk for importers?

A) documentary collection
B) advance payment
C) confirmed letter of credit
D) open account

Question 54

What is the primary risk an exporter faces with documentary collection?

A) bank changing terms
B) importer defaulting
C) issuing bank defaulting
D) importer failing to pay account balance

Question 55

Which of the following normally takes the form of a wire transfer of money from the bank account of the importer directly to that of the exporter prior to shipment of merchandise?

A) documentary collection
B) letter of credit
C) advance payment
D) open account

Question 56

Which of the following requires an importer to pay for the imported goods when they are delivered?

A) sight draft
B) onboard bill of lading
C) air way bill of lading
D) time draft

Question 57

Scenario: Wang's Techno Toys
Ann Wang has been successfully running Wang's Techno Toys that sells high-tech toys in the domestic market. Continually increasing and stiff competition at home has now forced Wang's Techno Toys to enter international markets through direct exports.
In some countries,people exchange electronic goods for Techno Toys instead of paying money for them.This practice is known as ________.

A) offset
B) counterpurchase
C) switch trading
D) barter

Question 58

What document serves as a title to the goods in question under the document collection payment method?

A) sight draft
B) bill of lading
C) bill of exchange
D) trade acceptance

Question 59

Which of the following is a method of export/import financing?

A) offset
B) buyback
C) switch trading
D) documentary collection

Question 60

A document ordering the importer to pay the exporter a specified sum of money at a specified time is called a ________.

A) bill of lading
B) letter of credit
C) bill of exchange
D) management contract

Question 61

Which of the following refers to the exchange of goods or services directly for other goods or services without the use of money?

A) offset
B) barter
C) counterpurchase
D) switch trading

Question 62

A time draft extends the period of time following delivery by which the importer must pay for goods.

Question 63

Scenario: Sports Stuff Inc.
Herb Graham is vice president of Sports Stuff Inc., a business that develops, manufactures, and markets sports products. The company is looking to expand its operations into the European market. Herb believes that if the company expands its product line to include products reflecting sports that are popular in Europe, the company will achieve success there.
Herb knows that much of the success his company enjoys is due to the patents and copyrights that protect the company's products.If Sports Stuff chooses an entry mode in which it grants another firm the right to use its intangible property for a specified period of time,it would be engaging in ________.

A) a turnkey project
B) franchising
C) licensing
D) a joint venture

Question 64

Scenario: Sports Stuff Inc.
Herb Graham is vice president of Sports Stuff Inc., a business that develops, manufactures, and markets sports products. The company is looking to expand its operations into the European market. Herb believes that if the company expands its product line to include products reflecting sports that are popular in Europe, the company will achieve success there.
Herb has been exploring another type of entry mode that requires ongoing assistance on the part of one firm,often in the form of start-up capital,management training,or location advice.Herb is most likely considering ________.

A) a strategic alliance
B) franchising
C) licensing
D) a joint venture

Question 65

Scenario: Gro-Tru Grows To Europe
Gro-Tru, a maker of chemical fertilizers and pesticides, sees enormous growth potential in Central Europe. The company has received several inquiries from potential importers in the region, but in most cases, the potential importers have expressed difficulty in obtaining the hard currency to pay for Gro-Tru's products. Alistair Green, vice-president for business development, is exploring how Gro-Tru can meet the needs of the potential market.
In his research,Alistair discovers a type of arrangement in which industrial equipment is exported in return for products produced by that equipment.This arrangement is known as ________.

A) barter
B) offset
C) switch trading
D) buyback

Question 66

Scenario: Gro-Tru Grows To Europe
Gro-Tru, a maker of chemical fertilizers and pesticides, sees enormous growth potential in Central Europe. The company has received several inquiries from potential importers in the region, but in most cases, the potential importers have expressed difficulty in obtaining the hard currency to pay for Gro-Tru's products. Alistair Green, vice-president for business development, is exploring how Gro-Tru can meet the needs of the potential market.
Which of the following methods would Gro-Tru be implementing if it exchanges its products directly for other goods or services without the use of money?

A) barter
B) offset
C) switch trading
D) buyback

Question 67

Advance payment made by an importer to an exporter normally takes the form of a sight draft.

Question 68

Which of the following is a contractual entry mode?

A) wholly owned subsidiaries
B) licensing
C) joint ventures
D) exporting

Question 69

The open account method of export/import financing is used when the two parties are unfamiliar with each other.

Question 70

Scenario: Gro-Tru Grows To Europe
Gro-Tru, a maker of chemical fertilizers and pesticides, sees enormous growth potential in Central Europe. The company has received several inquiries from potential importers in the region, but in most cases, the potential importers have expressed difficulty in obtaining the hard currency to pay for Gro-Tru's products. Alistair Green, vice-president for business development, is exploring how Gro-Tru can meet the needs of the potential market.
One option that intrigues Alistair is the process in which one company sells to another its obligation to make a purchase in a given country.This arrangement is known as ________.

A) barter
B) offset
C) switch trading
D) buyback

Question 71

Describe the process of how the documentary collection procedure works using an example.

Question 72

Scenario: Gro-Tru Grows To Europe
Gro-Tru, a maker of chemical fertilizers and pesticides, sees enormous growth potential in Central Europe. The company has received several inquiries from potential importers in the region, but in most cases, the potential importers have expressed difficulty in obtaining the hard currency to pay for Gro-Tru's products. Alistair Green, vice-president for business development, is exploring how Gro-Tru can meet the needs of the potential market.
Gro-Tru would be engaging in ________,if it decides that in exchange for a hard-currency sale it would make a hard-currency purchase of an unspecified product from the importing nation in the future.

A) barter
B) offset
C) switch trading
D) buyback

Question 73

Advance payment is the most favorable method of payment collection for exporters.

Question 74

Scenario: Gro-Tru Grows To Europe
Gro-Tru, a maker of chemical fertilizers and pesticides, sees enormous growth potential in Central Europe. The company has received several inquiries from potential importers in the region, but in most cases, the potential importers have expressed difficulty in obtaining the hard currency to pay for Gro-Tru's products. Alistair Green, vice-president for business development, is exploring how Gro-Tru can meet the needs of the potential market.
Alistair has identified an option that might help the firm deal with the importer's inability to pay with hard currency.The option involves selling goods or services that are paid for in whole or part with other goods or services.Which of the following methods is Alistair considering?

A) auction
B) bidding
C) countertrade
D) tendering

Question 75

A way for firms to trade by using either a small amount of hard currency,or even none at all,is called ________.

A) indirect exporting
B) countertrade
C) licensing
D) a joint venture

Question 76

Cross licensing occurs when companies use licensing agreements to swap intangible property with one another.

Question 77

Matching market needs to the company's abilities is the first step in developing a successful export strategy.

Question 78

What are the different financing methods available to exporters and importers?

Question 79

Discuss the steps companies should take to avoid export and import blunders.How can an advance payment method help exporters reduce financial risk?

Question 80

The biggest advantage of an export management company is usually its ________.

A) knowledge of the target market's cultural, political, legal, and economic conditions
B) well-developed and extensive distribution channels and storage facilities
C) well-rounded experience in countertrade-related activities
D) financial understanding of investment projects and its manufacturing expertise