Chapter 13

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

What are two reasons a firm would choose NOT to enter a new market on a large scale? (Check all that apply.)

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 three basic decisions must firms evaluate when considering foreign expansion? (Check all that apply.)

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

What are three advantages of being a first-mover? (Check all that apply.)

Preempting rivals Creating switching costs Building sales volume

According to the text, which three characteristics are important to consider when determining the long-run economic benefits of doing business in another country? (Check all that apply.)

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

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

Trademark Patent

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

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

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

create a competitor.

Among other things, being first typically enables a company to establish ______ and ______ before other entrants to the market arrive. (select the two options that apply)

customer loyalty brand recognition

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 two disadvantages of small-scale entry?

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

Pioneering costs are associated with _____.

first-mover disadvantages

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

small

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? (Check all that apply.)

A greenfield venture Acquire an established firm

What are three disadvantages to licensing for the licensor? (Check all that apply.)

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

What are two disadvantages of operating a wholly owned subsidiary? (Check all that apply.)

Bearing all the cost Bearing all the risk

What are three reasons that acquisitions fail? (Check all that apply.)

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

What are three examples of intangible property? (Check all that apply.)

Designs Copyrights Patents

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

Early entry

What are two advantages of turnkey projects? (Check all that apply.)

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

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

Entering a foreign market on a significant scale

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

What are two disadvantages of joint ventures? (Check all that apply.)

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

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

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 a joint venture? (Check all that apply.)

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

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.

What are two advantages of exporting? (Check all that apply.)

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

What are three disadvantages of exporting? (Check all that apply.)

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

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

Protect technological know-how Make the partner accountable

An early strategic commitment to large-scale entry may mean that a firm can benefit from what three things? (Check all that apply.)

Scale economies Switching costs Demand preemptions

What are three disadvantages of greenfield ventures? (Check all that apply.)

Slower to establish Preemption by other competitors Risky to establish

What are three advantages of a wholly owned subsidiary? (Check all that apply.)

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? (Check all that apply.)

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. The franchiser typically receives a royalty payment.

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 ______. (Check the two that apply.)

a country's capacity for growth a free market system

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

a greenfield venture

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

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?

export

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

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

false

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

false

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

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

flexibility

What are two disadvantages of franchising?

franchiser cannot take profits out of one country to support another lack of quality control

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

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. (Choose high or low.)

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

______ might be one disadvantage on acquisitions.

increased debt

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

What are three advantages of acquisitions?

less risky than greenfield ventures preempt the competition quick to execute

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. (select low or high)

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.

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

______ 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

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

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

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.

The three main disadvantages of turnkey projects include: (Check all that apply.)

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

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