Ch. 13 Quiz

Why do firms pursuing global standardization or transnational strategies tend to prefer establishing wholly owned subsidiaries? It allows firms to use the profits generated in one market to improve its competitive position in another market. It helps protect competitive advantages based on technology. It gives firms sound knowledge of the local markets, culture, and the political environment. It has the least costs and risks associated with developing a foreign market. It is the most politically accepted mode of entry into foreign markets.

It allows firms to use the profits generated in one market to improve its competitive position in another market. Firms pursuing global standardization or transnational strategies tend to prefer establishing wholly owned subsidiaries because it gives the firm the ability to use the profits generated in one market to improve its competitive position in another market.

Which of the following is an advantage of turnkey projects as a mode of entry into foreign markets? The firm that enters into a turnkey project with a foreign enterprise avoids giving rise to potential competitors. It is an ideal way to gain entry into a country where FDI is not limited by government regulations. It is an ideal way to establish a firm's long-term presence in a foreign country. It is a useful strategy to earn great returns from the know-how of a technologically complex process. It helps protect a firm's competitive advantage.

It is a useful strategy to earn great returns from the know-how of a technologically complex process. The know-how required to assemble and run a technologically complex process, such as refining petroleum or steel, is a valuable asset. Turnkey projects are a way of earning great economic returns from that asset. The strategy is particularly useful where FDI is limited by host-government regulations.

Which of the following is a drawback of licensing as a mode of entry into foreign markets? Licensing deals fail when there are barriers to foreign investment in a particular country. Licensing does not give a firm tight control over manufacturing, marketing, and strategy. Licensing does not benefit firms lacking the capital to expand operations overseas. A firm that enters into a licensing deal with a foreign country will have no long-term interest in that country. The licensor has to bear all costs and risks associated with developing a foreign market.

Licensing does not give a firm tight control over manufacturing, marketing, and strategy. A disadvantage of licensing is that it does not give a firm the tight control over manufacturing, marketing, and strategy that is required for realizing experience curve and location economies. Licensing typically involves each licensee setting up its own production operations. This severely limits the firm's ability to realize experience curve and location economies by producing its product in a centralized location.

Which of the following countries presents a favorable benefit-cost-risk trade-off scenario for foreign expansion? a country with a free market system a country experiencing a dramatic upsurge in inflation rates a country that is less developed and politically unstable a country that is heavily populated a country ridden by private-sector debt

a country with a free market system The benefit-cost-risk trade-off is likely to be most favorable in politically stable developed and developing nations that have free market systems, and where there is not a dramatic upsurge in either inflation rates or private-sector debt.

The probability of survival for an international business increases if it enters a national market after several other foreign firms have already done so. enters a national market early. avoids the use of countertrade agreements. avoids engaging in joint ventures. enters a foreign market via turnkey projects.

enters a national market after several other foreign firms have already done so. A certain liability is associated with being a foreigner, and this liability is greater for foreign firms that enter a national market early. Research seems to confirm that the probability of survival increases if an international business enters a national market after several other foreign firms have already done so.

The locally manufactured Nirma was a popular mainstream brand of detergent in India. However, with the entry of a foreign multinational such as Procter & Gamble into the Indian market, Nirma began to lose market share. According to Christopher Bartlett and Sumantra Ghoshal, how can Nirma differentiate itself from foreign multinationals? standardizing their product offerings licensing their core technologies entering into turnkey projects focusing on market niches raising trade barriers

focusing on market niches The local company may be able to find ways to differentiate itself from a foreign multinational, for example, by focusing on market niches that the multinational ignores or is unable to serve effectively if it has a standardized global product offering.

Which of the following modes of entry into foreign markets can result in a lack of control over quality? wholly owned subsidiaries joint ventures franchising turnkey projects exporting

franchising One of the disadvantages of franchising is that it can result in a lack of control over quality.

In international business, an advantage of being a late entrant in a foreign market is the ability to capture demand by establishing a strong brand name. create switching costs that tie customers into products or services. build sales volume and ride down the experience curve before early entrants. create a cost advantage over first movers. ride on an early entrant's investments in learning and customer education.

ride on an early entrant's investments in learning and customer education. Pioneering costs include the costs of promoting and establishing a product offering, including the costs of educating customers. Later entrants may be able to ride on an early entrant's investments in learning and customer education by watching how the early entrant proceeded in the market, by avoiding costly mistakes made by the early entrant, and by exploiting the market potential created by the early entrant's investments in customer education.

Turnkey projects, being short-term propositions, can be disadvantageous for a firm if a country subsequently proves to be a major market for the output of the process that has been exported. The firm can get around this problem by selling competitive advantage to competitors. competing with the local firm in the global market. taking a minority equity interest in the operation. establishing a joint venture with a local firm. withholding vital process technology from the local firm.

taking a minority equity interest in the operation. A firm that enters into a turnkey deal will have no long-term interest in the foreign country. This can be a disadvantage if that country subsequently proves to be a major market for the output of the process that has been exported. One way around this is to take a minority equity interest in the operation.

Omega, Inc. is considering international expansion and wants to know if it is likely to command a high price for its fitness product. In which of the following situations can Omega, Inc. command higher prices for its fitness product in a foreign market? sales volumes is relatively low in the foreign market the product is more suitable to other foreign markets the product offers greater value to customers in the foreign market the product is widely available in the foreign market domestic competitors are selling alternatives at reduced prices

the product offers greater value to customers in the foreign market The value created in a market by a company's product offering is an important factor in entry decisions. Greater value translates into an ability to charge higher prices and/or to build sales volume more rapidly.