question

The choice of what foreign markets to enter should be driven by an assessment of relative long-run growth and profit potential.

answer

TRUE

question

Ultimately, the choice for foreign expansion must be based on an assessment of a nation's short-run profit potential.

answer

FALSE

question

Although some markets are very large when measured by the number of consumers, businesses must also consider standards of living and economic growth.

answer

TRUE

question

China and, to a less extent, India, while relatively poor, are growing so rapidly that they are attractive targets for inward investment.

answer

TRUE

question

Preemptive advantages are the advantages frequently associated with entering a market early.

answer

FALSE

question

An advantage of being a first-mover is the ability to build sales volume in a country and ride down the experience curve ahead of rivals.

answer

TRUE

question

Pioneering costs are costs that an early entrant has to bear that a later entrant can avoid.

answer

TRUE

question

A decision that is short-term in nature and is fairly easy to reverse is referred to as a strategic commitment.

answer

FALSE

question

Early entrants can find themselves at a disadvantage if a subsequent change in a foreign country's regulations invalidates prior assumptions about the best business model for operating in that country.

answer

TRUE

question

Large-scale entry is a way to gather information about a foreign market before deciding whether to enter on a significant scale and how best to enter.

answer

FALSE

question

The risk-averse firm that enters a foreign market on a small scale may limit its potential loses, but it may also miss the chance to capture first-mover advantages.

answer

TRUE

question

The liability of being foreign is increased by the absence of prior foreign entrants whose experience can be a useful guide.

answer

TRUE

question

Entering s large developing nation such as China or India after most other international businesses in the firm's industry, and entering on a small-scale, will be associated with high levels of risk.

answer

FALSE

question

One advantage to exporting is that it avoids the costs of establishing manufacturing operations in the host country.

answer

TRUE

question

One disadvantage of wholly owned subsidiaries is that high transport costs can make it uneconomical, particularly for bulk products.

answer

FALSE

question

The contractor agrees to handle every detail of the project for a foreign client, including the training of operating personnel in a turnkey project.

answer

TRUE

question

A turnkey strategy is usually less risky than conventional FDI.

answer

TRUE

question

Licensing gives a firm tight control over the manufacturing, marketing, and strategy that is required for realizing experience curve and location economies.

answer

FALSE

question

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

answer

FALSE

question

A way to reduce the risks involved in licensing is to perform a cross-licensing agreement.

answer

TRUE

question

Franchising is employed primarily by service firms, whereas licensing is pursued primarily by manufacturing firms.

answer

TRUE

question

McDonald's is a good example of a firm that has grown by using a good licensing strategy.

answer

FALSE

question

Quality control is one of the significant disadvantages of franchising.

answer

TRUE

question

A franchise entails establishment of a firm that is jointly owned by two or more otherwise independent companies.

answer

FALSE

question

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

answer

TRUE

question

Sharing of development costs and risks is one of the advantages of joint ventures.

answer

TRUE

question

A firm that enters into a joint venture risks giving control of its technology to its partner.

answer

TRUE

question

A joint venture gives a firm tight control over subsidiaries that it might need to realize experience curve or location economies.

answer

FALSE

question

According to the text, Texas Instruments was engaging in global strategic coordination when it entered the Japanese semiconductor market.

answer

TRUE

question

A disadvantage of joint ventures is that the shared ownership arrangement can lead to conflicts or battles for control between the investing firms if their goals and objectives change.

answer

TRUE

question

One of the primary advantages of a wholly owned subsidiary is that it gives the firm tight control over operations in different countries that are necessary for engaging in global strategic coordination.

answer

TRUE

question

When a firm's competitive advantage is based on technological competence, a wholly owned subsidiary will often be the preferred entry mode because it reduces the risk of losing control over that competence.

answer

TRUE

question

A joint venture is required if a firm is trying to realize location and experience curve economies.

answer

FALSE

question

Establishing a wholly owned subsidiary is generally the most costly method of serving a foreign market from a capital investment standpoint.

answer

TRUE

question

Licensing has low development costs and risks.

answer

TRUE

question

Franchising has a lack of long-term market presence.

answer

FALSE

question

Licensing has an inability to engage in global strategic coordination.

answer

TRUE

question

If a firm's competitive advantage is based on control over technological know-how, licensing and joint-ventures should be encouraged.

answer

FALSE

question

Over the past decade, between 50 and 80 percent of FDI inflows have been in the form of mergers and acquisitions.

answer

TRUE

question

Overpayment for assets of an acquired firm is one reason acquisitions fail.

answer

TRUE

question

Which of the following is NOT a basic decision that a firm contemplating foreign expansion must make?

answer

How to withdraw from markets.

question

The magnitude of the advantages and disadvantages associated with an entry mode is NOT determined by:

answer

the surface area of the country.

question

Long-run economic benefits of doing business in a country are a function of factors such as:

answer

purchasing power of the consumers.

question

_____, while relatively poor, is growing so rapidly that it is an attractive target for inward investment.

answer

China

question

When making basic entry decisions, the benefit-cost-risk trade-off is likely to be most favorable in which type of country?

answer

A country with a free market system

question

The advantages frequently associated with entering a market early are commonly known as:

answer

first-mover advantages

question

Which of the following is a first-mover advantage?

answer

Create switching costs that tie customers into their products or services.

question

What are disadvantages associated with entering a market early commonly known as?

answer

First-mover disadvantages

question

Which of the following are costs that an early entrant has to bear that a later entrant can avoid?

answer

Pioneering costs

question

The ability to preempt rivals and capture demand by establishing a strong brand name is an example of:

answer

first-mover advantages.

question

_____ arise when the business system in a foreign country is so different from that in a firm's home market that the enterprise has to devote considerable effort, time, and expense to learning the rules of the game.

answer

Pioneering costs

question

The rapid expansion by Tesco into developing nations is an example of:

answer

capturing demand by establishing a strong brand name before the competitors.

question

Which type of costs involves promoting and establishing a product offering, including the costs of educating customers?

answer

Pioneering costs

question

A decision that has a long-term impact and is difficult to reverse is a(n):

answer

strategic commitment.

question

The _____ entrant is more likely than the _____ entrant to be able to capture the first-mover advantages associated with demand preemption, scale economies, and switching costs.

answer

large scale; small scale

question

Entering a market on a large scale implies:

answer

rapid entry.

question

What type of entry allows a firm to learn about a foreign market while limiting the firm's exposure to that market?

answer

Small-scale

question

By giving a firm time to collect information, _____ reduces the risks for that firm.

answer

small-scale entry

question

_____ firm that enters a foreign market on a small scale may limit its potential losses, but it may also miss the chance to capture first-mover advantages.

answer

A risk-averse

question

Which of the following is NOT a mode of entry that firms can use to enter foreign markets?

answer

Initial public offering

question

Which of the following is an advantage of exporting?

answer

Allows a firm to achieve experience curve and location economies.

question

All of the following statements are disadvantages of exporting EXCEPT:

answer

exporting may help a firm achieve experience curve economies.

question

Tariff barriers can make it uneconomical to use which mode of entry?

answer

Exporting

question

Turnkey projects are a means of exporting _____ to other countries.

answer

process technology

question

Turnkey projects are most common in the following industries:

answer

chemical, pharmaceutical, petroleum refining, and metal refining.

question

In which strategy does a foreign client have the least input in details of a project?

answer

Turnkey strategy

question

An advantage of _____ is that they are a way of earning great economic returns from technological assets.

answer

turnkey projects

question

Creating competitors and lack of long-term market presence are disadvantages of:

answer

turnkey projects.

question

Which of the following is an advantage of turnkey projects?

answer

Earning great returns from the technological know-how of running a complex process.

question

An arrangement whereby a licensor grants the rights to intangible property to another entity for a specified time period in exchange for royalties is a(n) _____ agreement.

answer

licensing

question

Examples of _____ property include patents, inventions, formulas, processes, designs, copyrights, and trademarks.

answer

intangible

question

A primary advantage of _____ is that the firm does not have to bear the development costs and risks associated with opening a foreign market.

answer

licensing

question

Which of the following is NOT a drawback of licensing?

answer

Licensing can become unprofitable due to trade barriers and transportation costs.

question

Under a(n) _____ agreement, a firm might license some valuable intangible property to a foreign partner, but in addition to a royalty payment, the firm might also request that the foreign partner license some of its valuable know-how to the firm.

answer

cross-licensing

question

Which type of agreement is believed to reduce the risks associated with licensing technological know-how?

answer

Cross-licensing agreement

question

Cross-licensing agreements are increasingly common in:

answer

high-technology industries.

question

Although they are similar, _____ tends to involve longer-term commitments than:

answer

franchising; licensing.

question

Franchising is employed primarily by:

answer

service firms

question

Advantages of _____ are low development costs and risks.

answer

franchising and licensing

question

Because the _____ typically assumes most costs and risks, he or she has the incentive to build a profitable operation as quickly as possible.

answer

franchisee

question

In franchises, the result of _____ can extend beyond lost sales in a particular foreign market to a decline in the firm's worldwide reputation.

answer

poor quality

question

To overcome quality control problems in franchises, a company could set up _____ in each country in which the firm expands.

answer

a subsidiary

question

A _____ entails establishment of a firm that is jointly owned by two or more otherwise independent firms.

answer

joint venture

question

The most typical joint venture is:

answer

50/50, in which there are two partners and each partner holds an equal share.

question

_____ has the following advantages: firms benefit from a local partner's knowledge of the host country's competitive conditions, a firm shares development costs with a local partner, and in many countries political considerations necessitate this form of entry. A. A wholly owned subsidiary

answer

A joint venture

question

Which of the following is NOT a disadvantage of joint ventures?

answer

A joint venture is the most costly and risky choice

question

Which of the following is a disadvantage of joint ventures?

answer

The shared ownership arrangement can lead to conflicts and battles for control between the investing firms.

question

In a _____, the firm owns 100 percent of the stock.

answer

wholly owned subsidiary

question

Establishing a wholly owned subsidiary in a foreign country can be done:

answer

by setting up a new operation or by acquiring an established firm.

question

ING's strategy for entering the U.S. market was to acquire established U.S. enterprises, rather than try to build an operation from the ground floor. ING follows which strategy?

answer

Wholly owned subsidiary strategy

question

A _____ is the preferred mode of foreign market entry for high-tech firms that want to minimize the risk of losing control over its technological competence; and maintain tight control over its operations.

answer

wholly owned subsidiary

question

What is the most costly form of foreign market entry?

answer

Wholly owned subsidiary

question

Protection of technology, the ability to engage in global strategic coordination, and the ability to realize location and experience curve economies are distinct advantages of: A. franchising.

answer

wholly owned subsidiaries.

question

Because all entry modes have advantages and disadvantages, _____ is inevitable.

answer

trade-off

question

The most advantageous entry mode is _____, if a high-tech firm sets up operations in a foreign country to profit from a core competency in technological know-how.

answer

wholly owned subsidiary

question

Which entry mode has low development costs and risks?

answer

Franchising

question

Which entry mode has the ability to realize location and experience curve economies?

answer

Exporting

question

Which entry mode has high costs and risks?

answer

Wholly owned subsidiaries

question

Which entry mode has a lack of control over quality?

answer

Franchising

question

Many service firms favor a combination of franchising and _____ to control the franchises within a particular country or regions.

answer

subsidiaries

question

The greater the pressures for cost reductions are, the most likely a firm will want to pursue some combination of:

answer

exporting and wholly owned subsidiaries.

question

When a firm expects rapid imitation of its core technology by competitors, what should it do?

answer

It should license its technology as rapidly as possible to foreign firms.

question

The competitive advantage of many _____ firms is based on management know-how.

answer

service

question

Why are wholly owned subsidiaries preferred by firms pursuing global or transnational strategies?

answer

They allow the use of profits generated in one market and improve the competitive position in another.

question

The need for _____ is particularly great in markets that are rapidly globalizing.

answer

preemption

question

Which of the following is an advantage of acquisitions?

answer

They are quick to execute and establish a sizable presence in the target market.

question

Which of the following is NOT an advantage of acquisitions?

answer

They are the least expensive form of expansion.

question

Which term refers to the situation when the management of the acquiring firm is too optimistic about the value than can be created via an acquisition and is willing to pay a significant premium over a target firm's market capitalization?

answer

The hubris hypothesis

question

Which of the following is an example of an intangible asset?

answer

Brand name

question

The _____ hypothesis postulates that top managers typically overestimate their ability to create value from an acquisition, primarily because rising to the top of a corporation has given them an exaggerated sense of their own capabilities.

answer

hubris

question

Differences in _____ can slow the integration of operations in acquisitions.

answer

management philosophy

question

After the DaimlerChrysler merger, many senior managers left Chrysler because they disliked the dominance in decision making by Daimler's German managers. This illustrates what type of acquisition disadvantage?

answer

Acquisitions may fail because there is a clash between the cultures of the two firms.

question

What can be done to reduce the risk of failure of an acquisition?

answer

Ensure that the firm does not pay too much for the acquired unit.

question

Screening a potential acquisition enterprise can do all of the following EXCEPT:

answer

ensure elimination of competition in the foreign market.

question

The big advantage of establishing a(n) _____ in a foreign country is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants.

answer

greenfield venture

question

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

answer

greater ability

question

It is much easier to build an organization culture from _____ than it is to change the culture of an acquired unit.

answer

scratch

question

If a firm is entering a market where there are already well-established incumbent enterprises, and where global competitors are also interested in establishing a presence, it may pay the firm to enter via a(n):

answer

acquisition

question

_____ are less risky than _____ in the sense that there is less potential for unpleasant surprises.

answer

Green-field ventures; acquisitions

question

Suzi's Sleds, Inc. is considering establishing a subsidiary in Japan, where there are no other incumbent competitors to acquire. Suzi's would do best in Japan with a(n):

answer

green-field venture.

Ch. 12 Entering Foreign markets – Flashcards

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