Chapter 13

The most typical joint venture involves a ____ stake in ownership between two companies.

50-50

What are two ways a company can set up a wholly owned subsidiary in a foreign country?

Acquire an established firm A greenfield venture

What is the term used for when one company enters markets before its competitors?

Early entry

Which is an example of a major strategic commitment by a company?

Entering a foreign market on a significant scale

Quick Auto Parts does not want to establish a manufacturing facility in Mexico but does want to get component parts to the 75 dealers it has in that country. Which form of entry should it use?

Exporting

True or False: A commitment that is strategic has a short-term impact and is easy to reverse.

False

True or false: As the pressure to reduce costs increases, a firm will focus on location and experience curve economies. These firms would MOST LIKELY consider franchising and joint ventures entry modes.

False

True or false: Greenfield ventures are more risky than acquisitions because there is greater potential for unpleasant surprises.

False

Who is typically responsible for the costs and risks in a franchise agreement?

Franchisee

involves one firm selling intangible property to another firm and insisting that the receiver of the intangible property abides by strict rules on how it does business.

Franchising

Slim-Stuff Yogurt would like to enter into a foreign market and build a production facility. The company knows there are currently no competitors or similar companies currently in that market. Which entry mode would be most appropriate for the company to use?

Greenfield venture

Which entry mode's major advantage is that a firm has more control over the kind of subsidiary it wants in a foreign market?

Greenfield venture

might be one disadvantage on acquisitions

Increased debt

At Jackson Electric, the company's core competence is based in the proprietary technology it has developed for kitchen appliances. Which foreign entry mode should Jackson Electric avoid in order to protect this technology?

Joint venture

Which of these companies is demonstrating a first-mover advantage?

Nelson Concrete recently opened a production plant in the Middle East after learning there were no competitive firms in that area.

costs arise when the foreign business system is so different from that in the home market that the firm must devote considerable time, effort, and expense to learning the rules of the game.

Pioneering

Henry's company decided to introduce a line of winter clothing to its product mix available in South Africa. One year later, the line was removed, since it failed to sell. What was the MOST LIKELY reason this product failed to sell in South Africa?

The products were not suitable for the market.

True or False: Though there are many advantages to acquisitions, acquisitions often produce disappointing results.

True

True or false: A cross-licensing agreement reduces the probability that each firm will take advantage of the other's intangible property.

True

True or false: Foreign market entry decisions are based on the varying levels of risk and reward.

True

True or false: Many acquisitions fail because of a clash between the cultures of the two organizations.

True

Lisette works for Southwest Petroleum Corp. Her company is responsible for every aspect of setting up a refinery location for its clients. Southwest Petroleum builds the site, trains personnel, and notifies the client when the refinery is ready for operation. What foreign entry mode does this represent?

Turnkey project

Which entry mode would be preferred when a company does not want to risk losing control over technological competence?

Wholly owned subsidiary

In which entry mode, does a firm own 100 percent of the stock?

Wholly-owned subsidiary

A company that gains entry into a foreign market through ______ has total control over the products or services manufactured or sold.

a greenfield venture

If a firm is highly concerned about choosing a politically acceptable entry mode, the firm should choose

a joint venture.

A type of entry mode that is common in the chemical, pharmaceutical, and petroleum-refining industries in which a contractor agrees to handle every detail of a project for a foreign client is called

a turnkey project

The foreign entry mode that is the most costly, with firms bearing the full capital costs and risks of operating overseas, is

a wholly owned subsidiary

Bob's Bicycle Company is planning to enter into foreign markets where there are already well-established incumbent enterprises and in which global competitors are also interested in establishing a presence. Based on these circumstances, Bob's Bicycle Company should enter the foreign markets via

acquisition

Prior to purchasing a foreign company, it is imperative that the potential buyer screens the financial position and management culture of the foreign company and obtains a detailed audit of operations. These are all vital steps in the ______ strategy.

acquisition

When a company decides that it will take too long to establish a sizable presence in a country, it will likely use ______ to enter the country.

an acquisition

Not being able to take advantage of lower-cost locations for manufacturing, dealing with high transport costs, and facing tariff barriers are disadvantages of

exporting

Jameson Machinery Inc. wants to release their newest equipment in the South American market before other companies in order to establish the Jameson brand. In other words, the company wants to benefit from

first-mover advantages

Kettle-Bright Corp. was the first company to introduce electric teapots in South America. The company had to establish production standards and educate customers about the benefits of the product which cost hundreds of thousands of dollars to do. These expenses are examples of

first-mover disadvantages

Pioneering costs are associated with

first-mover disadvantages

A company that enters a foreign market on a large scale must consider the lack of _____ associated with significant commitments.

flexibility

Quiet-Night Hotel Corp. has developments around the globe. Customers expect the same experience in every hotel but that has been a problem as not every hotel follows the expectations set down by the company. Quality control is a significant disadvantage of

franchising

A(n) ______ is a form of foreign direct investment where a parent company builds its operations in a foreign country from the ground up. In addition to the construction of new production facilities, these projects can also include the building of new distribution hubs, offices, and living quarters.

greenfield strategy

A company that enters a country where there are no existing competitors may have to rely on ______ as the only mode of entry.

greenfield venture

Starting a subsidiary from "scratch" where nothing is established is called a(n)

greenfield venture.

Entering a large developing nation like China before most other international companies, and entering on a large scale, will be associated with ______ levels of risk.

high

One way to control technology in a joint venture arrangement is for one company to

hold majority ownership.

the _____ hypothesis is demonstrated when the management of an acquiring firm is too optimistic about the value that can be created via an acquisition and is thus willing to pay a significant premium over a target firm's market capitalization.

hubris

Something of worth that cannot be touched or held, such as a formula, is considered to be ______ property.

intangible

An association of two or more companies engaged in a solitary business enterprise for profit without actual partnership or incorporation is called a(n)

joint venture

A shared business risk and shared resources and responsibility are both advantages of

joint ventures

A firm enters a market on a(n) ______ scale when it commits significant resources to this effort.

large

Higher risk and lack of flexibility are drawbacks of ______-scale (large or small?) entry into a foreign market.

large

When entering a global market using a(n)______ -scale (large or small?) entry strategy, a firm may be able to capture first-mover advantages associated with scale economies.

large

When a business enters a foreign market after other foreign firms, the situation is defined as ______ entry.

late

A turnkey project can be _____ risky than conventional foreign direct investment in a country with an unstable political climate.

less

Parul believes her company's newest technology product will be quickly imitated by others. When a company's competitive advantage is based on control of proprietary technological know-how, that company should AVOID a(n) ______ arrangement as it might lead to losing control of the technology.

licensing

The benefits of franchising are similar to the benefits of

licensing

Company ABC is unwilling to commit the necessary capital to construct a facility in Malaysia. However, they have determined that they want to enter that market. One option for the company might be a

licensing agreement.

Firms that do not have access to the capital necessary to develop overseas operations should engage in a(n)

licensing agreement.

Lyttleton Enterprises, based in the United States, is considering opening an operation in London, England. The costs and risks associated with doing business in London would be considered _____ -because the country is economically advanced and politically stable.

low

In order to make sure that a foreign enterprise has organizational customs and behaviors that are NOT antagonistic to an acquiring enterprise, it is vital that the acquiring enterprise screens the

management culture.

Many service firms base their competitive advantage on

management know-how.

Costs that companies entering a market early have to pay, but which firms late to the market do not have to bear, are called ______ costs.

pioneering

As an early entrant into the German market, Jason's company made several significant and expensive mistakes. Jason underestimated the financial liability the company would face as a foreign firm. This liability is an example of

pioneering costs.

Companies that want to have the least amount of risk when pursuing business in a foreign country should consider countries that are

politically stable

Acquisitions are considered _____ (slow or quick?) to execute.

quick

In a licensing deal, the licensor receives payment in the form of ____ from the licensee.

royalties

The drawbacks of a _____ -scale (large or small?) entry strategy include the inability to capture first-mover advantages.

small

Using a(n) ______ -scale (large or small?) entry strategy to enter global markets, a firm can take time to gather information to determine if it should enter the market on a more significant scale.

small

The strategy that allows firms to take their time to acquire information about a prospective market so they can determine how best to enter the market is

small-scale entry.

One serious risk associated with licensing is the risk of losing competitive advantage because of licensing a company's

technology

An international business can create value when bringing products to another country; however, this primarily depends on the attractiveness of the product being offered and

the existence of competition.

According to _____, top managers typically overestimate their ability to create value from an acquisition because they have an exaggerated sense of their own capabilities.

the hubris hypothesis

When considering the three basic decisions a firm must make when it decides to enter a foreign market, it must determine the market to enter, the timing of entrance, and

the scale.

If a high-tech firm wants to set up operations in a foreign country in order to profit from a core competency in technological know-how, it will typically do this by establishing a(n) ______ as a way to protect their technological advantage.

wholly owned subsidiary

One disadvantage of a turnkey project is that a company might inadvertently

create a competitor.

According to Bartlett and Ghoshal, a late mover company should try to learn as much as it can from competitors and _____ in order to succeed.

differentiate its product offering

What are three disadvantages to licensing for the licensor?

-A licensor does not have control over manufacturing, marketing, and strategy. -A licensor can lose control over its technology by licensing it. -Licensing limits the ability to coordinate strategic moves across several countries.

What are two disadvantages of operating a wholly owned subsidiary?

-Bearing all the cost -Bearing all the risk

Late entrants to a market can benefit from the pioneering costs associated with early entry. What are two of those benefits?

-Learning from the mistakes made by early entrants -Building on existing consumer education about the product

What are three advantages of acquisitions?

-Less risky than greenfield ventures -Preempt the competition -Quick to execute

If a firm is determining which foreign entry strategy to use but is concerned with maintaining control over its proprietary technology, which two entry modes should it AVOID?

-Licensing -Joint ventures

What are three advantages of a joint venture?

-Local partner's knowledge of the host country -Lowers risk of adverse government response -Shared development costs and risks

What are three examples of intangible property?

-Copyrights -Patents -Designs

What are three advantages of being a first-mover?

-Creating switching costs -Preempting rivals -Building sales volume

What two things did Christopher Bartlett and Sumantra Ghoshal say a late mover company should do to succeed against well-established competitors?

-Differentiate its product offering -Benchmark competitor operations

What are two disadvantages of small-scale entry?

-Difficult to build market share -Difficult to capture first-mover advantages

What are two advantages of turnkey projects?

-Earning greater returns from valuable assets -Entering markets where FDI is limited by host government

Which of the following are the two most appropriate foreign market entry modes as pressures for cost reductions increase

-Exporting -Wholly owned subsidiary

Which of the following are the two most appropriate foreign market entry modes as pressures for cost reductions increase?

-Exporting -Wholly owned subsidiary

What are two disadvantages of joint ventures?

-Giving up control of technology to the host country partner -Not having tight control over a local partner to realize experience curve or location economies

What are three disadvantages of exporting?

-High transportation can raise price of product -Not taking advantage of location economies associated with manufacturing elsewhere -Tariff barriers can make exporting uneconomical

If a firm's core competency is based on technological know-how, a firm generally should NOT use which two entry modes?

-Joint venture -Licensing

If a service firm's core competency is managerial know-how, which two foreign entry modes make the most sense?

-Joint ventures -Franchising

What are two disadvantages of franchising?

-Lack of quality control -Franchiser cannot take profits out of one country to support another

Cross-licensing agreements allow firms to do what two things?

-Make the partner accountable -Protect technological know-how

What are two reasons a firm would choose NOT to enter a new market on a large scale?

-May not have the resources available to commit to a large scale -Prefer to enter slowly so that it can become more familiar with the market

What are two advantages of exporting?

-Not having to establish manufacturing operations in host country -Helps a firm achieve experience curve and location economies

What are three reasons that acquisitions fail?

-Overpayment for assets of the acquired firm -Not realizing gains from integrating operations -Culture clashes between acquired and acquiring firms

According to the text, which three characteristics are important to consider when determining the long-run economic benefits of doing business in another country?

-Size of the market -Future wealth of consumers -Purchasing power of consumers

What are three disadvantages of greenfield ventures?

-Slower to establish -Preemption by other competitors -Risky to establish

An early strategic commitment to large-scale entry may mean that a firm can benefit from what three things?

-Switching costs -Demand preemptions -Scale economies

What are three advantages of a wholly owned subsidiary?

-The firm may realize location and experience curve economies. -The firm has tight control over foreign operations. -The firm can retain competitive advantage based on technology.

Which three statements are TRUE about franchising?

-The franchiser typically receives a royalty payment. -The franchisee commits to abiding by strict rules on how it does business. -It is similar to a license but with a longer time commitment.

What are two types of intangible property that can be associated with a licensing agreement?

-Trademark -Patent

What three basic decisions must firms evaluate when considering foreign expansion?

-Which markets to enter -When to enter markets -On what scale to enter markets

When determining whether or not to engage in a business in a foreign country, analysts should consider that future economic growth rates within any country are a function of both ______ and

-a free market system -a country's capacity for growth

Among other things, being first typically enables a company to establish ______ and ______ before other entrants to the market arrive.

-customer loyalty -brand recognition

The three main disadvantages of turnkey projects include:

-there is no long-term interest in the foreign country. -they may create competitors. -they may lose the competitive advantage of their process technology.