Chapter 14 + 5
Which of the following is the most likely motive behind firms in the mining industry wanting to enter new foreign markets? A) access to natural resources B) availability of excessive non-skilled labor force C) increase in refining capacity D) payment of wages remain the same in both the new market and the existing market
A
A firm that pursues foreign direct investment to take advantage of government incentives is demonstrating a(n) ___________ motive. A) efficiency-seeking B) novelty-seeking C) asset-seeking D) market-seeking
A
A(n) ________ is a special type of acquisition in which two companies join to form a larger firm. A) merger B) acquisition C) wholly owned direct investment D) greenfield investment
A
According to the _______, a country benefits by producing only those products in which it has complete advantage or that it can produce using fewer resources than another country. A) absolute advantage principle B) comparative advantage principle C) factor proportions theory D) international product cycle theory
A
An arrangement whereby the firm owns, or seeks to own, multiple stages of a value chain for producing, selling, and delivering a product or service is termed as ______. A) vertical integration B) horizontal integration C) decentralization D) centralization
A
During her presentation, Jessica describes how two automakers joined forces and formed a separate firm by pooling their assets. Which of the following topics was most likely assigned to Group A? A) equity joint venture B) acquisition C) greenfield investment D) vertical integration
A
Firms that anticipate close public scrutiny of their foreign operations often avoid potential difficulties by _________. A) locating in culturally similar countries B) investing in international securities C) hiring additional local personnel D) diversifying their corporate activities
A
How does the acquisition of foreign company most likely benefit a focal firm in the foreign market? A) The focal firm can extend its market reach through readily available distribution networks. B) The MNE avoids domestic and foreign taxation, which enables the firm to invest more resources in the foreign market. C) Firm managers can reduce their workload by ensuring that all decision-making responsibilities are taken up by foreign managers. D) The firm eliminates the need to train its own employees by utilizing the workers previously hired by the foreign firm.
A
The rate of inflation is a(n) ___ factor to be considered while selective the location for FDI. A) profit retention B) market C) infrastructural D) human resource
A
Which of the following a disadvantage of equity joint ventures? A) termination difficulties B) lesser control over future directions C) imbalances relationship D) vague contractual partnership
A
Which of the following industries considers proximity to customers especially important in the decision to enter a foreign market? A) fashion B) automotive C) biotechnology D) mining
A
Which of the following is a key reason that a focal firm would most likely enter a collaborative venture with a foreign firm? A) The foreign firm can fill an important gap in the focal firm's value chain. B) The foreign requires the focal firm's financial resources to compete locally as well. C) The focal firm wants to duplicate a competitor's marketing strategies abroad. D) The market abroad is saturated; there is no scope for the focal firm's products or services.
A
Which of the following is a trend seen in the modern international economy? A) Firms from both advanced and emerging economies employ FDI. B) Emerging markets are the sole recipient countries for FDI. C) Companies primarily use acquisitions to enter foreign markets. D) Companies primarily use acquisitions to enter foreign markets.
A
Which of the following is a typical outcome of free trade? A) Unrestricted international trade generally increases the overall prosperity of poor countries. B) Free trade sustains inflation in developing economies. C) Domestically produced products tend to be cheaper than imported products. D) Lower-cost imports cause living standards to deteriorate.
A
A joint venture is a form of collaboration between two or more firms to create a new, jointly owned enterprise.
True
A merger is a special type of acquisition.
True
By establishing a physical presence inside a country or an economic bloc, the foreign company obtains the same advantages as local firms.
True
Companies often enter markets through FDI to avoid tariffs and other trade barriers because these usually apply only to exporting.
True
Companies opt for FDI to obtain advantages associated with locating the hub of knowledge development and innovation in a given industry.
True
Compared to small firms, large companies usually can access capital at a lower cost.
True
Cross-licensing agreements are a type of project-based, nonequity venture in which the partners agree to allow access to licensed intellectual property developed by the other on preferential terms.
True
Economies of scale are decreases in per-unit cost of production resulting from increasing output.
True
FDI is also known as a foreign direct investment.
True
FDI is the most advanced and complex foreign market entry strategy.
True
FDI is the most taxing entry strategy that a firm can choose.
True
Firms often follow their key customers abroad to preempt other vendors from serving them.
True
Firms that engage in FDI avoid problematic trade barriers because the physical presence of a foreign firm earns it the same privileges as a local firm.
True
Foreign direct investment is the highest risk entry strategy.
True
Governments encourage inward FDI because it transfers skill and technologies.
True
Home Depot made an acquisition investment when it entered the Mexican market by purchasing Home Mart, a domestic store chain.
True
In the fashion industry, customer needs rapidly and managers often locate factories or assembly operations near important customers.
True
International portfolio investment refers to passive ownership of foreign securities.
True
Many international firms are investing in local communities and establishing global standards of fair treatments for workers in an effort to be socially responsible.
True
New markets, new resources, and improved efficiency are the three main motives for firms to enter foreign markets through FDI.
True
The challenges faced due to FDI differ from country to country.
True
The complexity of the tax system is one of the factors to be considered in selecting FDI locations.
True
The existence of a substantial market motivates many firms to produce offerings at or near customer locations.
True
The failure rate of collaborative ventures is higher in developing economies than in advanced economics.
True
Vertical integration is an arrangement whereby the firm owns or seeks to own multiple stages of a value chain for producing, selling, and delivering a product or service.
True
While franchising facilities rapid internationalization, compared to FDI, it affords the firm less control over its foreign operations.
True
Which of the following questions is most important for Ciao managers to evaluate in their decision regarding the location of the new manufacturing facility? A) What would be the costs and availability of skilled labor in Canada and Russia? B) What other industries manufacture products in Canada and Russia? C) How much time will it take to train managers in Canada and Russia? D) How should the current marketing strategies be modified to serve markets in Canada and Russia?
A
Which of the following statements strengthens the proposition that free trade is beneficial to nations? A) Free trade increases the standard of living by reducing consumer expenses. B) Imported products tend to be more expensive than domestically produced products. C) Unrestricted international trade generally lowers the overall prosperity of poor countries. D) Unrestricted international trade generally boosts inflation in developed economies.
A
__________ refers to the superior features of a country that provide unique benefits in global competition, typically derived from either natural endowments or deliberate national policies. A) comparative advantage B) competitive advantage C) absolute advantage D) industrial cluster
A
What makes China popular for FDI? What factors contribute to the long-term popularity of FDI in advanced economies?
According to A.T. Kennedy's FDI Confidence Index, China ranks among the top destinations for foreign investment. China is popular because of its size and rapid growth rate. It is an important platform where MNEs manufacture products to export to key markets in Asia and elsewhere. China also holds strategic importance for its long-term potential as a target market and source of competitive advantage. Advanced economies such as Australia, Canada, Japan, Netherlands, the United Kingdom, and the United States long have been popular destinations for FDI. These countries all share high per-capita GDP, strong GDP growth, high density of knowledge workers, and superior business infrastructure, such as telephone systems and energy sources destinations.
Which of the following should most likely be considered in making the decision to expand ABC operations into the Asian market? A) How will domestic competitors of ABC react to an international expansion? B) What technological and managerial know-how can ABC gain from an Asian expansion? C) How many managers will need to relocate to Asia to oversee the Asian project? D) How will ABD utilize the Internet to achieve success in the Asian market?
B
Collaborative ventures benefit SMEs by providing them with ______. A) better trained employees B) an increased amount of capital C) larger and newer facilities D) more advanced technology
B
The level of taxes in a country is a part of the _____ factor that is considered when selecting an FDI location. A) political B) profit retention C) market D) infrastructural
B
Which of the following comparative advantages is acquired over time? A) labor B) innovative capacity C) arable land D) petroleum reserves
B
Which of the following is TRUE with regard to competitive advantage? A) Competitive advantages are typically derived from deliberate national policies. B) A competitive advantage is difficult for competitors to imitate. C) A competitive advantage is also known as a country-specific advantage. D) Competitive advantage includes inherited resources, such as arable land.
B
Which of the following is TRUE with regard to firm-level theories? A) Firm-level theories are classical theories, widely accepted since the sixteenth century. B) Firm-level explanations address the question: "How can internationalizing firms gain and sustain competitive advantage?" C) Firm-level explanations address the question: "Why do nations trade?" D) FIrm-level theories do not address the issue of organizational performance.
B
Which of the following is a characteristic of an equity joint venture? A) simple management structure B) facilities knowledge transfer between partners C) easy to terminate D) lesser exposure to political risk
B
Which of the following is a characteristic of project-based, nonequity ventures? A) broad scope of product development B) a specific agenda and timeframe C) long-term sharing of resources D) formation of a new legal entity
B
Which of the following is a characteristic of successful international retailers? A) conservative managers and salespeople and a centralized organizational system B) an entrepreneurial approach to foreign markets and an understanding of the target market C) significant financial borrowings and high foreign and domestic operational costs D) extreme competition and support from home-country governments exclusively
B
Which of the following is an element of the comparative advantage principle? A) per unit cost advantage B) relative efficiency of production C) absolute cost of production D) negative balance of trade
B
Which of the following is an example of a market-seeking motive for FDI? A) a firm wishes to gain access to raw materials B) a firm follows its key customers abroad C) a company wishes to gain access to knowledge D) a company intends to avoid trade barriers
B
Which of the following most likely supports a decision to enter the Asian market through a project-based, nonequity collaborative venture with an Asian appliance manufacturer to create an environmentally friendly dishwasher? A) Asian firms have offered to pool their resources with ABC to create a new legal entity. B) Managers of both firms have decided not to seek ownership, rather they have decided to pool resources. C) ABC managers have the financial resources to quickly build a new Asian plant. D) The Asian government has offered incentives of ABC if the firm builds a plant.
B
Which of the following refers to the ability of a nation to produce a good more efficiently than any other nation? A) mercantilism B) comparative advantage C) absolute advantage D) neomercantilism
B
A firm most likely enters the home market of a foreign competitor in order to _____________. A) enter a collaborative venture with the competitor B) gain access to the competitor's government countracts C) force the competitor's government contracts D) interfere with the competitor's marketing campaign
C
A firm that builds a new manufacturing facility in a foreign market is participating in a(n) ________. A) acquisition B) merger C) greenfield investment D) equity participation
C
A firm that develops the capacity to sell its products by investing in marketing and selling operations is _________. A) acquiring downstream value-chain facilities B) acquiring upstream value-chain facilities C) engaging in centralization D) engaging in decentralization
C
A firm that pursues a collaborative venture to access raw materials is demonstrating a(n) ___________ motive. A) efficiency-seeking B) novelty-seeking C) asset-seeking D) market-seeking
C
Competitive advantage refers to the ____________. A) belief that national prosperity is the result of a positive balance of trade, achieved by maximizing exports and a minimizing imports B) superior features of a country that provide unique benefits in global competition, typically derived from either natural endowments or deliberate national policies C) distinctive assets or competencies of a firm that are difficult for competitors to imitate and are typically derived from specific knowledge, capabilities, skills, or superior strategies D) relative absence of restrictions to the flow of goods and services between nations
C
During his presentation, Manu describes how a large U.S. retailer entered the Mexican market by purchasing the stores and assets of a Mexican retailer. Which of the following topics was most likely assigned to group B? A) merger B) turnkey operation C) acquisition D) collaborative venture
C
During his presentation, Mario describes how a large Japanese automaker built a factory in Kentucky. Which of the following topics was most likely assigned to Group C? A) horizontal integration B) equity joint venture C) greenfield investment D) consortium
C
In recent years, business executives and scholars have used ________ to refer to the advantages possessed by nations and individual firms in international trade and investment. A) comparative advantage B) country-specific advantage C) competitive advantage D) cost advantage
C
Nations running a trade surplus ___________. A) rely solely on imports B) openly discourage export C) exports more goods than they import D) import more goods than they export
C
The purchase of an existing company or facility is known as a(n) ________. A) greenfield investment B) licensing C) acquisition D) equity joint venture
C
Which of the following best explains why some service industry firms most likely enter foreign markets through FDI? A) The market abroad is saturated; therefore, the other entry strategies are most likely to fail B) The service of the firm requires tough intellectual property laws C) The service offered by the firm requires direct contact with customers D) The firm's service is not successful domestically, so globalization is required
C
Which of the following is TRUE about the theory of absolute advantage? A) The theory accepts the mercantilist idea that international trade is a zero-sum game. B) The theory approves the objective of national governments to acquire wealth through restrictive trade policies. C) The theory emphasizes that nations should open their doors to trade so that people can obtain more goods at cheaper rates. D) The theory measures a nation's wealth by how much gold and silver has on reserve.
C
Which of the following is a comparative advantage? A) close relationships with suppliers B) superior strategies of an organization C) entrpreneurial orientation D) the distinct capabilities of an organization
C
Which of the following questions would most likely be important for ABC managers to evaluate as they consider expanding into the Asian market? A) What U.S. firms have successfully partnered with Asian companies? B) Where will ABC management locate the staff needed to oversee an Asian plant? C) How much control does ABC management want to have over their Asian operations? D) What are the pricing strategies followed by competitor firms in Asia?
C
Which of the following represents an infrastructural factor that firms must consider when selective an FDI location? A) size and growth of national market B) political stability C) availability and quality of local manufacturing D) stability of currency
C
Which of the following should be considered in the decision regarding where to build a new Ciao plant? A) How many Ciao cars are sold in Italy and Spain each year? B) What U.S. automakers are the biggest competitors of Ciao? C) How politically stable are the governments of Russia and Canada? D) How will Ciao managers handle the language barriers in foreign markets?
C
Which of the following, if TRUE, weakens Daniel's prosposition? A) Mercantilism helps curb inflation. B) Running a trade surplus is beneficial for nations. C) Restricting imports reduces the choice of products consumers can buy. D) Mercantilism tends to benefit firms that import.
C
________ says that nations should accumulate financial wealth, usually in the form of gold, by encouraging exports and discouraging imports. A) Absolute advantage theory B) Factor proportions theory C) Mercantilism D) Communism
C
A consortium is defined as ________. A) the purchase of an existing company or facility B) two partners forming a new legal entity C) an equity venture to consolidate the value chain D) multiple partners participating on a large-scale project
D
A(n) _________ is a project-based, usually nonequity venture initiated by multiple partners to fulfill a large-scale project. A) greenfield investment B) acquisition C) merger D) consortium
D
International portfolio investment is characterized by _____________. A) short-term foreign market speculation B) long-term administration of MNE stocks C) active control of a foreign business D) passive ownership of foreign stocks and bonds
D
The _______ theory states that countries produce and export goods that require resources available in abundance and import goods that require resources in short supply. A) new trade B) absolute advantage C) international product life cucle D) factor proportions
D
When a country is not able to produce a good more efficiently that other nations, but produces the good more efficiently than it does any other good, it is said to have a(n) ___________. A) absolute advantage B) resource advantage C) first-mover advantage D) comparative advantage
D
Which of the following best exemplifies corporate social responsibility? A) a computer firm charging a high fee for recycling old computers B) an automobile manufacturer selling low-fuel economy cars and trucks C) a telecommunications firm charging high rates to low-income customers D) an automotive battery firm offering free technical training to students of a deprived community
D
Which of the following most likely supports a decision to enter the Asian market by building a factory near Tokyo? A) Executives at ABC want the firm to have the flexibility to reconfigure operations at the Japanese plant. B) The Japanese yen has been fluctuating over the last year and analysts do not anticipate it settling down. C) ABC Managers want to delegate responsibility of much of the Japanese plant to local intermediaries. D) The CEO of ABC is willing to invest a large amount of capital and other assets to ensure success in Japan.
D
Which of the following most likely supports the decision by Ciao managers to build a plant in Russia? A) the Russian government is transparent and totally corruption-free B) Ciao would be able to take advantage of the North American Free Trade Agreement C) intellectual property lawsuits are common in Russia D) land and construction costs are relatively inexpensive in Russia
D
Which of the following must be considered in selecting foreign direct investment locations? A) rate of inflation B) tax rates for profit repatriation C) stability of currency D) all of the above
D
Which of the following represents a human resource factor that firms must consider when selecting an FDI location? A) intellectual property protection B) transparency and corruption C) extent of bureaucracy and red tape D) involvement of labor unions
D
Which of the following terms is used to refer to a focal firm's partial ownership of an existing firm? A) turnkey operation B) greenfield operation C) direct investment D) equity participation
D
________ is the belief that national prosperity is the result of a positive balance of trade, achieved by maximizing exports and minimizing imports. A) Positivism B) Imperialism C) Communism C) Mercantilism
D
A greenfield investment is a direct investment to purchase an existing company or facility.
False
A new legal entity is created during the formation of a project-based, nonequity venture.
False
Equity joint ventures have the simplest management structure.
False
Host-country governments often pressure MNEs to undertake acquisition over greenfield investments.
False
In the context of attaining economies of scope, using individual managers in each European country is more efficient that using the same base of managers all over Europe.
False
International expansion invariably results in a decrease in a firm's economies of scale
False
International portfolio investment refers to a firm's direct control of foreign operations and is an equity-based method of foreign market entry.
False
One of the key advantages to an equity joint venture is that the management structure is very simple, which allows for easy adjustments and modifications.
False
Project-based, nonequity ventures are difficult to set up.
False
Tariff and other trade barriers for exports and FDI are identical.
False
The strategic purpose behind firms competing with rivals in their own market is to force them to expend resources and thus, defend the firm's own market.
False
Explain why FDI is a particularly risky foreign entry strategy.
Foreign direct investment (FDI) is an internationalization strategy where the firm establishes a physical presence abroad through direct ownership of productive assets such as capital, technology, labor, land, plant, and equipment. FDI is the most advanced and complex foreign market entry strategy. It entails establishing manufacturing plants, marketing subsidiaries, or other facilities in target countries. Because this involved investing substantial resources to establish a physical presence abroad, FDI is riskier than other entry strategies. International portfolio investment refers to passive ownership of foreign securities, such as stocks and bonds, for the purpose of generating financial returns. International portfolio investment is a form of international investment, but it is not FDI, which seeks ownership control of a business abroad and represents a long-term commitment. The United Nations uses the benchmark of at least 10 percent ownership in the enterprise to differentiate FDI from portfolio investment. However, this percentage may be misleading, because control is not usually achieved unless the investor owns at least 50 percent of a foreign venture.
Discuss three reasons for firms seeking new market opportunities. Illustrate each with an example of a firm that sought a new foreign market for that particular motive.
a. Gain access to new markets or opportunities. The existence of a substantial market motivates many firms to produce offerings at or near customer locations. Local production improves customer service and reduces the cost of transporting goods to buyer locations. Coca-Cola, IBM, Samsung, and Siemens all generate more sales abroad than in their home markets. The opening case highlights Huawei Technologies, a Chinese firm that has invested billions in Africa to gain access to fast-growing mobile phone markets there. b. Follow key customers. Firms often follow their key customers abroad to preempt other vendors from serving them. Establishing local operations also positions the firm to better serve customer needs. Tradegar Industries supplies the plastic that its customer Procter & Gamble uses to manufacture disposable diapers. When P&G built a plant in China, Tradegar followed P&G there, establishing production in China as well. c. Compete with key rivals in their own markets. Some MNEs may choose to confront current or potential competitors directly, in the competitor's home market. The strategic purpose is to weaken the competitor by forcing it to expend resources to defend its market. In the earth-moving equipment industry, Caterpillar entered a joint venture with Mitsubishi to put pressure on the market share and profitability of their common rival, Japan's Komatsu. The need to spend substantial resources to defend its home market reduced Komatsu's ability to expand abroad.