IBUS 310 -Ch 13 SmartBook

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

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

True

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

greenfield venture.

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

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.

______ 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

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.

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

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

less

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

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

-Bearing all the cost -Bearing all the risk

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

-Benchmark competitor operations -Differentiate its product offering

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

-Building sales volume -Preempting rivals -Creating switching costs

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

-Designs -Patents -Copyrights

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? (Check all that apply.)

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

What are two disadvantages of franchising?

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

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

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

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

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

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

What are three advantages of a joint venture? (Check all that apply.)

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

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

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

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

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

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

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

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

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

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 three advantages of acquisitions?

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

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 -Demand preemptions -Switching costs

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

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

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

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

Which three statements are TRUE about franchising? (Check all that apply.)

-The franchisee commits to abiding by strict rules on how it does business. -The franchiser typically receives a royalty payment. -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

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 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. (select the two options that apply)

-brand recognition -customer loyalty

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

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

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

50-50

______ generally occur(s) between companies that hold patents over different aspects of the same product. By entering into this type of agreement, both companies can avoid litigation over infringement disputes.

Cross-licensing

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: 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

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.

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

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

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

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

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

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

Conrad's U.S. based company entered the European market long after its competitors had established themselves. This is known as ________ entry.

late

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

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.