MGMT 461 - Exam 3 Chapter 13

Joint Venture Advantages

Reduced Risk Level Penetration of markets Access to channel

Exporting, importing: -Why Do Companies Export

-Economies of Scale -Diversify Sales -Gain international business experience

Developing an Export Strategy: 4 step model

-Identify a potential market -Match needs to abilities -Initiate meetings -Commit resources

Joint Venture Disadvantages

-partner conflict -lose control

Strategic Alliance Advantages

-share project cost -tap competitors strengths -gain channel access

What is the main difference between offset and​ counterpurchase? A.Counterpurchase is​ product-specific; offset is not. B.Counterpurchase identifies the amount of a future​ purchase; offset does not. C. Counterpurchase requires that one company sells to another its obligation to make a purchase in a given​ country; offset does not. D. Offset requires an exchange of goods to reduce the transfer of hard​ currency; counterpurchase does not. E.Offset requires a seller of equipment to buy products made with that​ equipment; counterpurchase does not.

A.Counterpurchase is​ product-specific; offset is not.

Fujitsu of Japan signed a​ five-year cross-licensing agreement with Texas Instruments of the United States. The agreement allowed each company to use the​ other's technology in the production of its own​ goods, thus lowering research and development​ (R&D) costs. Which of the following is this an example​ of? A.Cross licensing B.Franchising C.Turnkey projects D.Management contracts E.Licensing

A.Cross licensing

Company A is facing slow sales in one national market​ (perhaps due to a​ recession). Which one of the following is a compelling reason for the company to begin​ exporting? A.Diversify sales. B.Increase overall market profitability. C.Saturate domestic markets. D.Achieve economies of scale. E.Gain international business experience.

A.Diversify sales.

Company​ X's product has reached its maximum market share in the domestic market. The company has the capacity to operate another shift to increase production if it increases sales and can realize an overall reduction in production​ costs, which is the most important priority for the company. Which one of the following is the number one compelling reason for the company to begin​ exporting? A.Expand total sales B.Increase market share C.Avoid economies of scale D.Establish global brand recognition E.Gain experience in a foreign market

A.Expand total sales

Which one of the following payment terms presents the minimum risk to the​ exporter? A.Irrevocable letter of credit B.Open account C.Revocable letter of credit D.Time draft E.Documentary collection

A.Irrevocable letter of credit

If a market is lax in enforcing copyright and patent​ laws, a company may prefer to use investment entry to maintain control over its assets and marketing. Which one of the following strategic factors should the company consider when making the appropriate entry mode​ selection? A.Political and legal environments B.Market size C.Cultural environment D.Production and shipping costs E.International experience

A.Political and legal environments

To better ensure that companies will not make embarrassing​ blunders, an inexperienced exporter might also want to engage the services of a freight forwarder. Freight forwarders are expert in which one of the following​ areas? A.Shipping and insurance fees B.Providing storage facilities C.Tax schedules D.Developing distribution channels E.Taking ownership of merchandise

A.Shipping and insurance fees

An Internet portal company provides access to a​ large, global audience through its​ website, while the technology company supplies its​ know-how in​ delivering, say, music over the Internet. This is an example of what type of an investment​ entry? A.Strategic alliances B.Turnkey projects C.Franchise agreement D.Joint ventures E.Wholly owned subsidiary

A.Strategic alliances

Forms of export -Indirect

Agents Export mgmt companies Export trading companies

Investment: Strategic Alliance

An alliance, but don't form a company

Which investment entry mode enables managers to have complete control over​ day-to-day operations in the target market and access to valuable​ technologies, processes, and other intangible properties within the​ company? A.Franchise agreement B. Wholly owned subsidiaries C.Strategic alliances D.Turnkey projects E.Joint ventures

B. Wholly owned subsidiaries

A time draft typically has a maximum length of time allowed for payment following delivery by which the importer must pay for the goods. What is the maximum time usually allowed for​ payment? A.30 days B.90 days C.120 days D.365 days E.60 days

B.90 days

Which one of the following BEST describe​ agents? A.Agents operate​ contractually, either as an agent​ (being paid through commissions based on the value of​ sales) or as a distributor​ (taking ownership of the merchandise and earning a profit from its​ resale) B.Agents receive compensation in the form of commissions on the value of sales C.An agent is a company that provides services to indirect exporters in addition to activities directly related to​ clients' exporting activities D.An agent represents only​ his/her own​ company's products, not those of other companies E.An agent can sell in the target market through​ distributors, which take ownership of the merchandise when it enters their country

B.Agents receive compensation in the form of commissions on the value of sales

Which one of the following types of countertrade practice typifies​ long-term relationships between the companies​ involved? A.Barter B.Buyback C.Counterpurchase D.Switch trading E.Offset

B.Buyback

Which one of the following contractual agreements allows each party to use the​ other's technology in the production of its own​ goods? A.Licensing B.Cross licensing C.Turnkey projects D.Management contracts E.Franchising

B.Cross licensing

Which one of the following occurs when companies use licensing agreements to exchange intangible property with one​ another? A.A nonexclusive license B.Cross licensing C.An exclusive license D.Franchising E.Turnkey projects

B.Cross licensing

Which payment method is commonly used when there is an​ on-going business relationship between the exporter and the​ importer? A.Advance payment B.Documentary collection C.Open account D.A sight draft E.Irrevocable letter of credit

B.Documentary collection

Which one of the following is a disadvantage of hiring an export management company​ (EMC)? A.Involved strictly in exporting B.Hinders the development of the​ exporter's own international expertise C.Exploits contacts in one geographic area D.Exploits contacts predominantly in one industry E.Operates contractually

B.Hinders the development of the​ exporter's own international expertise

Types of Countertrade

Barter, counterpurchase, offset, switch trading, buyback

Which one of the following occurs when a company sells its products directly to buyers in a target​ market? A.Foreign direct investment B.Franchising C.Direct exporting D.Countertrade E.Indirect exporting

C.Direct exporting

Which one of the following occurs when a company sells its products to intermediaries that then resell to buyers in a target​ market? A.Portfolio investment B.Direct exporting C.Indirect exporting D.Distributors E.Sales representatives

C.Indirect exporting

A business may explore the advantages of​ licensing, franchising, management​ contracts, and turnkey projects. After businesses become comfortable in a particular​ market, joint​ ventures, strategic​ alliances, and wholly owned subsidiaries become viable options. Which strategic factor influences this investment entry​ decision? A.Production and shipping costs B.Political and legal environments C.International experience D.Market size E.Cultural environment

C.International experience

Which one of the following is an arrangement in which an exporter ships merchandise and later bills the importer for its​ value? A.Revocable letter of credit B.A sight draft C.Open account D.Irrevocable letter of credit E.Advance payment

C.Open account

Which one of the following requires the importer to pay when goods are​ delivered? A.Irrevocable letter of credit B.Revocable letter of credit C.Sight draft D.Advance payment E.Open account

C.Sight draft

Contractual: Cross Liscensing

Companies agree to exchange intangiable property with one another

Bill of Lading

Contract between an exporter and a shipper that specifies merchandise destination and shipping costs

Turnkey Disadvantages

Create competitors Politicized process

Which one of these types of payments represents the highest risk exposure to the​ importer? A.Irrevocable letter of credit B.Revocable letter of credit C.Documentary collection D.Advance payment E.Open account

D.Advance payment

Which one of the following is a contract between the exporter and shipper that specifies merchandise destination and shipping​ costs? A.Counterpurchase B.Open account C.Letter of credit D.Bill of lading E.Sight draft

D.Bill of lading

Which one of the following statements BEST describes direct​ exporting? A.Direct exporting is exporting through export management companies only. B.Direct exporting is a management agreement between manufacturers and end users overseas. C.Direct exporting occurs when selling to export trading company. D.Direct exporting can rely on either local sales representatives or distributors. E.Direct exporting is limited to industrial products only.

D.Direct exporting can rely on either local sales representatives or distributors.

Which one of the following is a company that exports products on behalf of an indirect​ exporter? A. A sales representative B. Export import firm C.Export trading company D.Export management company​ (EMC) E.Agent

D.Export management company​ (EMC)

Which one of the following new market entry modes is a​ low-cost, low-risk​ option, where companies can rely on consistent products and common themes in worldwide​ markets? A.Licensing B.Turnkey projects C.Management contracts D.Franchising E.Foreign direct investment

D.Franchising

Some companies place reliance for their international sales on distributors or sales representatives. Which of the following is a key function of​ distributors? A.Assigning risk associated with local sales to the producer of the goods B.Attending trade fairs on behalf of the producer C.Selling only to end users D.Taking ownership of the merchandise when it enters their country. E.Selling similar products from multiple producers

D.Taking ownership of the merchandise when it enters their country.

Which one of these type of payments is the most favorable method for exporters and least favorable for​ importers? A.Documentary collection B.Irrevocable letter of credit C.Revocable letter of credit D.Open account E.Advance payment

E.Advance payment

Which one of the following is the sale of goods or services to a country by a company that promises to make a future purchase of a specific product from that​ country? A.Barter B.Buyback C.Switch trading D.Offset E.Counterpurchase

E.Counterpurchase

Which one of the following is a contractual entry mode in which one company supplies another company with intangible property and other assistance over an extended​ period? A.Licensing B.Management contracts C.Cross licensing D.Turnkey projects E.Franchising

E.Franchising

Which of the following is a service provided by export management companies​ (EMCs)? A.Accepting all risks related to local sales B.Taking ownership of merchandise C.Providing​ import, export, and countertrade services D.Lobbying for favorable treatment in the target country E.Gathering market information

E.Gathering market information

Identify the payment method that represents the greatest risk to the exporter. A.Sight draft B.Documentary collection C.Advance payment D.Irrevocable letter of credit E.Open account

E.Open account

Toshiba of​ Japan, Siemens of​ Germany, and IBM of the United States shared the​ $1 billion cost of developing a facility near​ Nagoya, Japan, to manufacture​ small, efficient computer memory chips. This an example​ of____________. A.Wholly owned subsidiary B.Licensing C.Management contracts D.Joint ventures E.Strategic alliances

E.Strategic alliances

Which type of investment entry mode is considered an expensive undertaking and has high​ risk? A.Franchise agreement B.Joint ventures C.Turnkey projects D.Strategic alliances E.Wholly owned subsidiary

E.Wholly owned subsidiary

Open Account

Exporter ships merch and later bills the importer for its value

Entry Mode Categories

Exporting, importing Contractual Investment

Rising incomes in a market encourage investment entry modes because investment allows a firm to prepare for expanding market demand and to increase its understanding of the target market. Which one of the following strategic factors influences the selection of the country entry​ mode? A.Infrastructure of the target country B.Strength of rivals C.Countertrade options D.Joint venture options E.Availability of information F.Market size

F.Market size

Investment: Wholly Owned Subsidary

Facility owned and controlled by a single parent company

MGMT Contract Advantages

Few Assets Risked Nations Finance projects Develops local workforce

Licensing Advantages

Finance expansion Reduce risks Reduce counterfeits Upgrade technologies

Letter of Credit

Importer's bank issues a document stating that the bank will pay the exporter when exporter fulfills document's terms

Entry Mode definition

Institutional arrangement by which a firm gets its products, technologies, human skills, or other resources into a market

My Gym Video

Issues with Mexican Branch because the culture is so different

Forms of export -Direct

Local sales reps Distributors

Franchising Advantages

Low cost and low risk Rapid expansion Local knowledge

Turnkey Advantages

firms specialize in competency Nations Obtain infrastructure

Contractual: Turnkey

One company designs, constructs, and tests a production facility

Contractual: Franchising

One company supplies another with intagiable property and assistance over an extended period

Contractual: MGMT contract

One company supplies the other with managerial expertiese

MGMT contract Disadvantages

Personnel at Risk Create Competitor

Licensing Disadvantages

Restrict licensor's activities Reduce global consistency Lend strategic property

Strategic Factors in Selecting an Entry Mode

Selecting Partners for Cooperation Cultural Environment Political and Legal Environments Market Size Production and Shipping Costs International Experience

Investment: Joint Venture

Seperate company that is created and jointly owned by 2 or more independent commons business objective

Contractual: Licensing

When a company owning an intangiable object grants the other firm the right to use that property

Documentary Collection

bank acts as an intermediary

Franchising Disadvantages

cumbersome, lost flexibility

Wholly Owned Subsidiaries Advantages

day-to-day control coordfination of subsidiaries

bill of exchange

document ordering an importer to pay an exporter a specified sum of money at a specified time

Wholly Owned Subsidiaries Disadvantages

expensive, high risk

Advance Payment

when importer pays exporter for merchandise before it is shipped