Deck 13: Entering Foreign Markets

Question 1

By considering advantages and disadvantages, trade-offs can often be avoided when selecting an entry mode.

Answer 1

False
Explanation: All the entry modes have advantages and disadvantages. Thus, trade-offs are inevitable when selecting an entry mode.

Question 2

Exporting, as a mode of entry into foreign markets, does not help a firm achieve experience curve and location economies.

Answer 2

False
Explanation: Exporting may help a firm achieve experience curve and location economies. By manufacturing the product in a centralized location and exporting it to other national markets, the firm may realize substantial scale economies from its global sales volume.

Question 3

The probability of survival decreases if an international business enters a national market after several other foreign firms have already done so.

Answer 3

False
Explanation: Research seems to confirm that the probability of survival increases if an international business enters a national market after several other foreign firms have already done so. The late entrant may benefit by observing and learning from the mistakes made by early entrants.

Question 4

An international firm that enters into a turnkey deal has a long-term interest in the foreign country.

Question 5

In a typical international licensing deal, a licensor puts up most of the capital necessary to get an overseas operation going.

Question 6

Franchising, a mode of entry into a foreign market, helps firms exert greater quality control over franchises in foreign locations.

Question 7

In international business, an early entrant to a foreign market may be at a disadvantage relative to a later entrant, if regulations change in a way that diminishes the value of an early entrant's investments.

Question 8

A firm contemplating expansion should choose a foreign market based on an assessment of the nation's long-run profit potential.

Question 9

According to Christopher Bartlett and Sumantra Ghoshal, firms from developing countries cannot succeed in foreign markets in the presence of other established global competitors.

Question 10

The most typical joint venture is a 50/50 venture, in which there are two parties, each of which holds a 50 percent ownership stake and contributes a team of managers to share operating control.

Question 11

The attractiveness of a country as a potential market for an international business depends solely on the size of its consumer market.

Question 12

Large-scale entry allows an international firm to learn about a foreign market while limiting the firm's exposure to that market.

Question 13

In international business, a strategic commitment has a short-term impact and is easily reversible.

Question 14

Under a cross-licensing agreement, a firm can either request a royalty payment or license some valuable intangible property to a foreign partner.

Question 15

Small-scale entrants are more likely to capture first-mover advantages associated with switching costs.

Question 16

A risk-averse international firm that enters a foreign market on a small scale will increase its potential losses.

Question 17

In terms of the various modes of entry into a foreign market, franchising is employed primarily by service firms, whereas licensing is pursued primarily by manufacturing firms.

Question 18

Licensing, a mode of entry into a foreign market, gives an international firm tight control over manufacturing, marketing, and strategy that is required for realizing experience curve and location economies.

Question 19

A drawback of exporting is that tariff barriers can make it uneconomical as a mode of entry into a foreign market.

Question 20

If an international business can offer a product that has been widely available in that market, the value of that product to consumers is likely to be much greater than if the international business offers a product that has not been widely available in that market.

Question 21

In a joint venture, a firm benefits from a local partner's knowledge of the host country's competitive conditions, culture, language, political systems, and business systems.

Question 22

An international firm that perceives its technological advantage to be transitory and susceptive to rapid imitation might want to license its technology to foreign firms.

Question 23

Which of the following factors determines the value that an international business can create in a foreign market?

A)Population density in the foreign market
B)Political stability of the foreign market
C)Nature of indigenous competition
D)Per capita income in the foreign market
E)Type of political system in the foreign market

Question 24

If an international firm's core competence is based on proprietary technology, entering a joint venture might risk losing control of that technology to the joint-venture partner.

Question 25

An advantage of establishing a greenfield venture in a foreign country is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants.

Question 26

According to David Ravenscraft and Mike Scherer's study, many acquisitions destroy rather than create value.

Question 27

The need for preempting competitors is particularly great in the telecommunications market.

Question 28

In which of the following situations can an international business command higher prices for a particular product in a foreign market?

A)When the product is widely available in the foreign market
B)When sales volumes is relatively low in the foreign market
C)When the product offers greater value to customers in the foreign market
D)When the product is more suitable to other foreign markets
E)When domestic competitors are selling alternatives at reduced prices

Question 29

Which of the following is a reason why a relatively poor country may be an attractive target for inward investment?

A)Rapid economic growth
B)Political instability
C)Currency depreciation
D)High cost of living
E)Less developed infrastructure

Question 30

Acquiring firms often overpay for the assets of the acquired firms.

Question 31

Shared ownership agreements can lead to conflicts and battles for control between investing firms.

Question 32

When an international firm makes an acquisition in a foreign market, it acquires valuable intangible as well as tangible assets.

Question 33

Which of the following countries presents a favorable benefit-cost-risk trade-off scenario for foreign expansion?

A)A country ridden by private-sector debt
B)A country with a free market system
C)A country experiencing a dramatic upsurge in inflation rates
D)A country that is heavily populated
E)A country that is less developed and politically unstable

Question 34

Licensing increases the risk of losing control over a firm's proprietary technological know-how.

Question 35

Establishing a wholly owned subsidiary gives an international firm a 100 percent share in the profits generated in a foreign market.

Question 36

In international business, joint ventures with local partners face a significantly higher risk of being subject to nationalization.

Question 37

In international business, a product that is not widely available in a foreign market and satisfies an unmet need:

A)is likely to have greater value.
B)will have to be priced relatively low.
C)will see a decrease in sales volume.
D)is not suited to that particular market.
E)will fail to make a profit.

Question 38

In terms of the entry modes into a foreign market, a joint venture does not give an international firm the tight control over subsidiaries that might be required to realize experience curve or location economies.

Question 39

Firms pursuing global standardization or transnational strategies tend to prefer setting up wholly owned marketing subsidiaries.

Question 40

When a firm's competitive advantage is based on technological competence, a joint venture is the preferred mode of entry into a foreign market because it reduces the risk of losing control over that competence.

Question 41

Which of the following is the most likely outcome of a foreign firm entering a developed nation on a small scale after other international businesses in the firm's industry?

A)Capturing first-mover advantages
B)Higher pioneering costs
C)Rapid increase in market share
D)Limited future growth potential
E)Increase in sales volume

Question 42

In international business, an advantage of being a late entrant in a foreign market is the ability to:

A)create switching costs that tie customers into products or services.
B)capture demand by establishing a strong brand name.
C)build sales volume and ride down the experience curve before early entrants.
D)ride on an early entrant's investments in learning and customer education.
E)create a cost advantage over first movers.

Question 43

Small-scale entry into a foreign market makes it difficult to build market share because it:

A)necessitates rapid entry into a foreign market.
B)is associated with a lack of commitment demonstrated by the foreign firm.
C)leads to escalating strategic commitments.
D)requires that extra time be spent in analyzing a foreign market.
E)leads to increased exposure to a foreign market.

Question 44

Which of the following is true of the costs and risks associated with doing business in a foreign country?

A)They are greater for late entrants.
B)They are higher in politically democratic nations.
C)They are less pronounced in the case of licensing.
D)They are lower in economically advanced nations.
E)They are called opportunity costs.

Question 45

Which of the following is a course of action suggested by Christopher Bartlett and Sumantra Ghoshal for companies based in developing nations?

A)Build up financial resources to match those of the largest global competitors.
B)Enter foreign markets at a similar time and scale as multinational companies.
C)Enter markets rapidly and exit at an equally rapid pace to avoid heavy losses.
D)Benchmark one's operations and performance against foreign multinationals.
E)Do not focus on market niches that multinational companies ignore.

Question 46

Which of the following describes a turnkey project?

A)Granting rights to intangible property to other firms
B)Establishing firms that are jointly owned by two or more otherwise independent firms
C)Exporting process technology to other countries
D)Setting up wholly owned subsidiaries in foreign nations
E)Selling products produced in one country to residents of other countries

Question 47

Which of the following is an example of a first-mover advantage?

A)The ability to create switching costs that tie customers into one's products or services
B)The avoidance of pioneering costs that a later entrant into the foreign market has to bear
C)The increased probability of surviving in a foreign market
D)The opportunity to observe and learn from the mistakes of other entrants
E)The ability to let later entrants ride ahead on the experience curve

Question 48

Which of the following types of entry into a foreign market allows a firm to learn about the foreign market while limiting the firm's exposure to that market?

A)Early entry
B)Small-scale entry
C)Large-scale entry
D)Late entry
E)Rapid entry

Question 49

According to Christopher Bartlett and Sumantra Ghoshal, how can local companies differentiate themselves from foreign multinationals?

A)By licensing their core technologies
B)By entering into turnkey projects
C)By standardizing their product offerings
D)By focusing on market niches
E)By raising trade barriers

Question 50

Which of the following is an advantage of choosing exporting as a mode of entry into foreign markets?

A)A firm can avoid the cost of establishing manufacturing operations in the host country.
B)A firm shares the development costs and risks with its host partner.
C)A firm can earn returns from process technology skills in countries where FDI is restricted.
D)A firm has access to local partner's knowledge.
E)A firm has the ability to engage in global strategic coordination.

Question 51

The liability associated with foreign expansion is greater for foreign firms that:

A)choose to ride on an early entrant's investments.
B)use countertrade agreements.
C)enter a national market early.
D)ride down the experience curve behind their rivals.
E)avoid pioneering costs.

Question 52

Which of the following is a risk of entering developing nations like India and China on a large scale?

A)Lower potential for long-term rewards
B)Absence of prior foreign entrants
C)Lack of control over quality
D)Fear of rapid imitation of technology
E)High management turnover

Question 53

An early entrant find may find itself at a disadvantage if it:

A)is trying to realize location and experience curve economies.
B)incurs low development costs.
C)faces a subsequent change in business regulations in the host-country.
D)has a core competence based on control over technological know-how.
E)considers a greenfield strategy.

Question 54

Which of the following is a disadvantage of small-scale entry for an international firm considering foreign expansion?

A)The possibility of escalating commitment leading to major financial losses
B)The limited availability of resources for use in other markets
C)The lack of flexibility associated with strategic commitments
D)The increase in economic exposure due to minimal time spent in evaluating a foreign market
E)The difficulty of building market share and capturing first-mover advantages

Question 55

The probability of survival for an international business increases if it:

A)enters a national market after several other foreign firms have already done so.
B)avoids the use of countertrade agreements.
C)enters a national market early.
D)enters a foreign market via turnkey projects.
E)avoids engaging in joint ventures.

Question 56

Which of the following is a disadvantage of large-scale entry into a foreign market?

A)Decrease in a firm's exposure to the foreign market
B)Difficulty attracting customers and distributors for the product
C)Inability to build rapid market-share irrespective of the scale of entry
D)Limited product acceptance due to the avoidance of potential losses
E)Availability of fewer resources to support expansion in other desirable markets

Question 57

First-mover disadvantages refer to:

A)disadvantages associated with entering a foreign market before other international businesses.
B)costs that a late entrant to a foreign market has to bear.
C)a direct restriction on the quantity of a good that can be imported into a country.
D)imperfections in the operation of the market mechanism.
E)disadvantages experienced by being a late entrant in a foreign market.

Question 58

In which of the following modes of entry into foreign markets does a firm agree to set up an operating plant for a foreign client and hand over the plant when it is fully operational?

A)Franchising agreement
B)Turnkey project
C)Licensing agreement
D)Wholly owned subsidiary
E)Joint venture

Question 59

In exporting, problems with local marketing agents can be overcome by:

A)selling intangible property to a franchisee and insisting on rules to conduct the business.
B)changing agents frequently.
C)engaging in turnkey projects and exporting process technology to foreign firms.
D)entering into cross-licensing agreements with foreign firms.
E)setting up wholly owned subsidiaries in foreign nations to handle local marketing.

Question 60

How can firms avoid incurring high transport costs when exporting bulk products?

A)By taking a minority equity interest
B)By entering into a turnkey project with a foreign firm
C)By manufacturing bulk products regionally
D)By setting up subsidiaries irrespective of market reach
E)By reducing the quantity of the product offering

Question 61

Which of the following is an advantage of joint ventures as a mode of entry into foreign markets?

A)The foreign firm benefits from a local partner's knowledge of the host country.
B)The foreign firm can protect its technology from being appropriated by its local partner.
C)There is less cause for friction and conflict between the foreign and local partners.
D)It gives a firm tight control over subsidiaries, which enables it to realize experience curve or location economies.
E)The foreign firm does not have to bear any development costs and risks associated with opening a foreign market.

Question 62

Which of the following is an advantage of turnkey projects as a mode of entry into foreign markets?

A)It is an ideal way to gain entry into a country where FDI is not limited by government regulations.
B)It is a useful strategy to earn great returns from the know-how of a technologically complex process.
C)It is an ideal way to establish a firm's long-term presence in a foreign country.
D)It helps protect a firm's competitive advantage.
E)The firm that enters into a turnkey project with a foreign enterprise avoids giving rise to potential competitors.

Question 63

When should a firm configure its value chain to maximize value at each stage?

A)When government regulations relax
B)When cost pressures are intense
C)When rapid imitation is expected
D)When the number of consumers increases
E)When incumbent competitors exist

Question 64

The risks associated with learning to do business in a new culture are less if the firm:

A)engages in global strategic coordination.
B)imposes strict marketing guidelines on how to do business.
C)enters a greenfield venture in the host country.
D)realizes substantial location economies.
E)acquires an established host-country enterprise.

Question 65

Which of the following is a disadvantage of franchising?

A)The franchiser has to bear development costs and risks associated with foreign expansion.
B)Franchising leads to undesirable results for service firms.
C)It is difficult to maintain quality control across foreign franchisees that are distant from the franchiser.
D)The franchiser has no long-term interests in the foreign country.
E)It forces a franchiser to take out profits from one country to support competitive attacks in another.

Question 66

What triggers the conflict of interest over strategy and goals in joint ventures?

A)Local partner's knowledge of host country's competitive conditions
B)Giving control of core technology to the foreign partner
C)Shifts in relative bargaining power of venture partners
D)Trying to realize location and experience curve economies
E)Risk of being subject to adverse government interference

Question 67

Which of the following is a drawback of licensing as a mode of entry into foreign markets?

A)The licensor has to bear all costs and risks associated with developing a foreign market.
B)Licensing does not give a firm tight control over manufacturing, marketing, and strategy.
C)Licensing does not benefit firms lacking the capital to expand operations overseas.
D)Licensing deals fail when there are barriers to foreign investment in a particular country.
E)A firm that enters into a licensing deal with a foreign country will have no long-term interest in that country.

Question 68

Turnkey projects being short-term propositions can be disadvantageous for a firm if a country subsequently proves to be a major market for the output of the process that has been exported. The firm can get around this problem by:

A)selling competitive advantage to competitors.
B)competing with the local firm in the global market.
C)taking a minority equity interest in the operation.
D)withholding vital process technology from the local firm.
E)establishing a joint venture with a local firm.

Question 69

Which of the following is an example of an industry in which cross-licensing agreements are increasingly becoming common?

A)Glass-blowing
B)Biotechnology
C)Organic farming
D)Basketry
E)Weaving

Question 70

In terms of licensing, which of the following is an intangible property?

A)Infrastructure
B)Machinery
C)Leased equipment
D)Advanced computing systems
E)Patent

Question 71

Why should a high-tech firm avoid selecting licensing as a mode of entry?

A)Threat of creating efficient partners
B)Risk of losing control over technology
C)Fear of rapid imitation of core technology
D)Lack of a transitory technological advantage
E)Inability to deter development costs

Question 72

Which of the following entry modes into a foreign market best serves a high-tech firm?

A)Turnkey projects
B)Franchising
C)Wholly owned subsidiaries
D)Joint ventures
E)Exporting

Question 73

Franchising as a mode of entry into foreign markets is employed primarily by:

A)service firms.
B)manufacturing companies.
C)online outfits.
D)high-technology companies.
E)primary industries.

Question 74

Licensing is NOT attractive to which of the following firms?

A)Firms lacking the capital to develop operations overseas
B)Firms unwilling to commit substantial financial resources to an unfamiliar market
C)Firms requiring tight control of operations for realizing experience curve and location economies
D)Firms wanting to explore markets but prohibited from doing so by investment barriers
E)Firms with intangible properties with business applications that it does not want to develop itself

Question 75

Axiom International, an Australian company, wants to expand its operations to China, a country that is politically, culturally, and economically different. The firm needs to select a mode of entry that would give it access to local knowledge, allow sharing of development costs and risks, and also be politically acceptable. Which of the following modes of entry into foreign markets is most suitable for Axiom International?

A)Wholly owned subsidiary
B)Joint venture
C)Exporting
D)Greenfield investments
E)Licensing

Question 76

How can a wholly owned subsidiary be established in a foreign market?

A)Through a turnkey operation with a local partner
B)Through franchising
C)By acquiring an established firm in the host nation
D)By exporting
E)Through a licensing agreement

Question 77

A distinction can be drawn between firms whose core competency is in which of the following?

A)Scale of entry and strategic commitments
B)Location and experience curves
C)Acquisitions and greenfield ventures
D)Technological know-how and management know-how
E)Cost reductions and entry mode

Question 78

Which of the following modes of entry into foreign markets can result in a lack of control over quality?

A)Exporting
B)Franchising
C)Turnkey projects
D)Wholly owned subsidiaries
E)Joint ventures

Question 79

Which of the following is true of international firms considering foreign expansion?

A)The timing and scale of entry of foreign expansion are minor details in comparison with the choice of foreign market.
B)The long-run economic benefits of doing business in a country are solely a function of the country's population size.
C)If the firm's core competence is based on proprietary technology, entering a joint venture might risk losing control of that technology to the joint-venture partner.
D)The costs and risks associated with foreign expansion are higher in economically advanced nations.
E)Politically unstable and less developed nations offer favorable benefit-cost-risk trade-off conditions.

Question 80

Which of the following is an advantage of franchising as a mode of entry into foreign markets?

A)The franchiser is relieved of many of the costs and risks of opening a foreign market on its own.
B)The franchiser is allowed to take profits out of one country to support competitive attacks in another.
C)The franchiser can easily maintain uniform quality across many geographically dispersed franchisees.
D)Manufacturing concerns can be effectively coordinated across adjacent processes.
E)The franchiser can support its short-term interests in a country with an unstable economy.