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
