Chapter 13 International Business

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: As the pressure to reduce costs increases, a firm will focus on location and experience curve economies. These firms would MOST LIKELY consider franchising and joint ventures entry modes.

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

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

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

What three basic decisions must firms evaluate when considering foreign expansion?

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

Which entry mode would be preferred when a company does not want to risk losing control over technological competence?

Wholly owned subsidiary

Which of the following are the two most appropriate foreign market entry modes as pressures for cost reductions increase?

Wholly owned subsidiary Exporting

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

Bob's Bicycle Company is planning to enter into foreign markets where there are already well-established incumbent enterprises and in which global competitors are also interested in establishing a presence. Based on these circumstances, Bob's Bicycle Company should enter the foreign markets via ______.

acquisition

When a company decides that it will take too long to establish a sizable presence in a country, it will likely use ______ to enter the country.

an acquisition

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

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

greenfield venture.

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 (blank) levels of risk.

high

The (blank) 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 (blank) scale entry into a foreign market.

large

When entering a global market using a (blank) entry strategy, a firm may be able to capture first-mover advantages associated with scale economies.

large

When entering a global market using a (blank) scale 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

When a business enters a foreign market after other foreign firms, the situation is defined as ______ entry.

late

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 (blank) because the country is economically advanced and politically stable

low

Many service firms base their competitive advantage on

management know-how.

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

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

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

50-50

What are three disadvantages to licensing for the licensor?

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

What are two ways a company can set up a wholly owned subsidiary in a foreign country?

Acquire an established firm A greenfield venture

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 advantages of exporting?

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

______ might be one disadvantage on acquisitions.

Increased debt

Which three statements are TRUE about franchising?

It is similar to a license but with a longer time commitment. The franchisee commits to abiding by strict rules on how it does business. The franchiser typically receives a royalty payment.

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

If a firm's core competency is based on technological know-how, a firm generally should NOT use which two entry modes?

Joint venture Licensing

If a service firm's core competency is managerial know-how, which two foreign entry modes make the most sense?

Joint ventures Franchising

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

If a firm is determining which foreign entry strategy to use but is concerned with maintaining control over its proprietary technology, which two entry modes should it AVOID?

Licensing Joint ventures

What are three reasons that acquisitions fail?

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

What are three examples of intangible property?

Patents Designs Copyrights

What are two reasons a firm would choose NOT to enter a new market on a large scale?

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

What are three advantages of a joint venture?

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

An early strategic commitment to large-scale entry may mean that a firm can benefit from what three things?

Switching costs Scale economies Demand preemptions

What are three advantages of a wholly owned subsidiary?

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.

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

Trademark Patent