done Chapter 13 Multiple Choice

A country that ________ presents a favorable benefit-cost-risk trade-off scenario for foreign expansion.

B) has a free market system

What is one disadvantage of wholly owned subsidiaries as a mode of entry into foreign markets?

B) high costs and risks

Small-scale entry into a foreign market makes it difficult to build market share because it

B) is associated with a lack of commitment demonstrated by the foreign firm.

California Fresh Food wants to expand internationally. Sales Director Sun-Jun Lee prefers that the company export to foreign markets. What rationale should Lee use to show the advantage of exporting as a mode of entry?

A) A firm can avoid the cost of establishing manufacturing operations in the host country.

Why do acquisitions fail sometimes?

A) There is a clash between the cultures of the acquiring and acquired firms.

If a firm is seeking to enter a market via a wholly owned subsidiary where there are already well-established incumbent enterprises, and where global competitors are also interested in establishing a presence, a suitable mode of entry is a(n)

A) acquisition.

First-mover disadvantages refer to

A) disadvantages associated with entering a foreign market before other international businesses.

The probability of survival for an international business increases if it

A) enters a national market after several other foreign firms have already done so.

Storm Fighters Inc. makes winter clothing in the United States, and it is looking to distribute its products in Europe. Rather than build and maintain a manufacturing facility in the Netherlands, the company decides to ship its winter gear directly from its plant in Montana. What type of entry mode is the company using?

A) exporting

Sun Energy is the first hydro-based energy plant in Australia, and it has captured a large portion of the market. It has created a strong brand name that everyone associates with energy efficiency and cost savings. In this market, Sun Energy is demonstrating

A) first-mover advantages.

Stacey Yung wants to open a Pizza Hut restaurant in Beijing and has an agreement with the restaurant chain in which she can use the trademark and must also follow a strict set of guidelines detailing how the business should operate. The Pizza Hut Corporation will receive a percentage of Stacey's revenues from her restaurant. What type of entry mode does this represent?

A) franchising

If a firm is considering entering a country where incumbents exist, and if the competitive advantage of the firm is based on the transfer of organizationally embedded competencies, skills, routines, and culture, what would be the preferable mode of entry?

A) greenfield venture

Many gluten-free food options are found on the store shelves in the United States, but they are scarcely available in international markets. Given the increasing awareness of a healthy lifestyle, such products satisfy an unmet need. Therefore, a product such as gluten-free food in international markets

A) is likely to have greater value.

One reason why a relatively poor country may be an attractive target for inward investment is the potential for

A) rapid economic growth.

Franchising as a mode of entry is employed primarily by

A) service firms.

One advantage of joint ventures is that

A) the foreign firm benefits from a local partner's knowledge of the host country.

One advantage of acquisitions as a means of entering foreign markets is that

A) they are quick to execute and help firms to rapidly build their presence in the target foreign market.

Cal-Com Systems is a high-tech firm looking to set up operations in a foreign country. The firm's core competency is in technological know-how. Which mode of entry would be most favorable to the firm if it wants to keep a tight control over its technology?

A) wholly owned subsidiary

Which mode of entry into foreign markets can result in a lack of control over quality?

B) franchising

________ would be an example of an industry in which cross-licensing agreements are becoming increasingly common.

B) Biotechnology

What is an advantage of turnkey projects as a mode of entry into foreign markets?

B) It is a useful strategy to earn great returns from the know-how of a technologically complex process.

What is a drawback of licensing as a mode of entry into foreign markets?

B) Licensing does not give a firm tight control over manufacturing, marketing, and strategy.

A company might not want to consider ________ as a means of entry into a foreign market because it is generally the most costly method from a capital investment standpoint.

B) a wholly owned subsidiary

Service Corp. International provides customer service support for a variety of industries. Their brand name is well known, and as a service firm, it does not have to protect any proprietary technology. What mode of entry is most suitable for service companies like Service Corp. International where its main asset is its brand name?

B) franchising

Jumpin' Joey Tennis Shoes, an Australian company, wants to expand its operations to China, a country that is politically, culturally, and economically different. The firm needs to select a mode of entry that would give it access to local knowledge, allow sharing of development costs and risks, and also be politically acceptable. Which mode of entry into foreign markets is most suitable for Jumpin' Joey Tennis Shoes?

B) joint venture

Why should a high-tech firm avoid selecting licensing as a mode of entry?

B) risk of losing control over technology

Which type of entry allows a company to learn about the foreign market while limiting the firm's exposure to that market?

B) small-scale entry

An oil-rich country in the Middle East wants to develop its own refining industry but lacks the technology to do so. To accomplish their goal, they decide to enter into an agreement with a U.S. firm that has this technology. The U.S. firm is pleased to make this agreement because without it, they could never gain value from their technology in this country due to its limits on FDI. What type of agreement did these companies use?

B) turnkey

In a ________, a firm agrees to set up an operating plant for a foreign client and hand over the plant when it is fully operational.

B) turnkey project

Why do firms pursuing global standardization or transnational strategies tend to prefer establishing wholly owned subsidiaries?

C) It allows firms to use the profits generated in one market to improve its competitive position in another market.

What is a disadvantage of franchising?

C) It is difficult to maintain quality control across foreign franchisees that are distant from the franchiser.

As the Chief Financial Officer for a metal refinery, Kaylee disagrees with using a turnkey strategy to enter into the Asian market. She is concerned that the company will not benefit from a long-term interest and could lose financially if the market proves to be successful. What is one way the metal refinery could get around this concern?

C) Take a minority equity interest in the operation.

How does the hubris hypothesis affect a company that is considering an acquisition?

C) Top managers typically overestimate their ability to create value from the acquisition.

When two or more independent firms establish a new firm together, it is an example of

C) a joint venture.

What is one way a wholly owned subsidiary can be established in a foreign market?

C) by acquiring an established firm in the host nation

The liability associated with foreign expansion is greater for foreign firms that

C) enter a national market early.

An international firm considering foreign expansion should take into account that

C) if the firm's core competence is based on proprietary technology, entering a joint venture might risk losing control of that technology.

John developed a food additive that replaces processed sugars. He granted the right to use this additive to a major cereal manufacturer, and John now receives a $0.50 royalty for every box of cereal sold that contains this additive. What is this an example of?

C) licensing

How can firms avoid incurring high transport costs when exporting bulk products?

C) manufacturing bulk products regionally

The text points out two things that can affect the value an international business creates in a foreign market: the sustainability of its product offering and the

C) nature of indigenous competition.

What form of entry into a foreign market gives a firm tight control for coordinating a globally dispersed value chain?

C) setting up wholly owned marketing subsidiaries

High transportation costs are a disadvantage for companies that

C) ship large, bulky products.

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

C) taking a minority equity interest in the operation.

An international business can command higher prices for a particular product in a foreign market when

C) the product offers greater value to customers in the foreign market.

Autumn Roofing, an American firm, recently acquired another company, Shingle Shores, in Indonesia. The high-level managers at Shingle Shores quit because they could not cope with the domineering and straightforward approach of their American counterparts. This illustrates how acquisitions may fail because

C) there is a clash between the cultures of the acquired and the acquiring firm.

Complex and expensive technology is needed to develop products at Feel-Better Pharmaceuticals based in Austin, Texas. For this reason, the company plans to have a plant built in Portugal that is ready for full operation and will be used for products sold in Europe. What type of entry mode is Feel-Better Pharmaceuticals using?

C) turnkey project

Gen-Fast Shoes wants to expand internationally and is deciding if its line of tennis shoes can be sold at a high price in Europe. One way for Gen-Fast Shoes to assess this is to determine whether these types of shoes in the foreign market offer customers greater

C) value.

Which entry mode into a foreign market best serves a high-tech firm because it reduces the risk of losing that competence?

C) wholly owned subsidiaries

When WoodFire Stoves decided to be a first-mover in the Canadian market, it had to spend 25 percent of its budget on promotional videos and other educational tools that explained why a WoodFire Stove product was a necessary and a cost-saving method of heat. The costs the company incurred are known as

D) pioneering costs.

In international business, an advantage of being a late entrant in a foreign market is the ability to

D) ride on an early entrant's investments in learning and customer education.

What is a disadvantage of greenfield ventures?

D) They are slower to establish than acquisitions.

The risk of failure of an acquisition can be reduced by

D) a detailed auditing of operations, financial position, and management culture.

Rather than build a new facility in Canada where it wants to make a presence, Denver-based Mountain Man Gear decides to purchase Canada Goose Gear based in Toronto. This purchase allows Mountain Man Gear to establish a bigger presence much faster than exporting their products to Canadian customers. What mode of entry did Mountain Man Gear use?

D) acquisition

When considering modes of entry, Christopher Bartlett and Sumantra Ghoshal suggest that companies based in developing nations should

D) benchmark operations and performance against foreign multinationals.

According to Christopher Bartlett and Sumantra Ghoshal, how can local companies differentiate themselves from foreign multinationals?

D) focusing on market niches

Locally manufactured Bubbles is a popular brand of detergent in Germany. However, with the entry of a foreign multinational into the market, Bubbles begins to lose market share. According to Christopher Bartlett and Sumantra Ghoshal, how can the producer of Bubbles best differentiate itself from foreign multinationals?

D) focusing on market niches

Comp-U-Learn Inc. prides itself on a competitive advantage based on their proprietary educational software technology. What two entry modes should the company avoid in order to minimize the risk of losing this technology?

D) licensing and joint venture

A likely outcome of a foreign firm entering a developed nation on a small scale after other international businesses in the industry is

D) limited future growth potential.

To reduce the risks of failure of an acquisition, managers must

D) move rapidly after an acquisition to put an integration plan in place.

Supple SkinCare Inc. is spending significant money educating customers on the value of its mineral-based skincare line as it moves into several new international markets. The money to educate customers is a form of

D) pioneering costs.

Farm Tuff Inc. hired a local agent to handle marketing when it started exporting products to Europe. Unfortunately, the local agent also handled the marketing for a competitor, Agri-Corp., and Farm Tuff soon realized the agent could not be "loyal" to their product. What should Farm Tuff do to best remedy this situation to its advantage?

E) Set up a wholly owned subsidiary to handle local marketing.

The risks associated with learning to do business in a new culture are less if the firm

E) acquires an established host-country enterprise.

When Yum Brands (which owns KFC, Taco Bell, and Pizza Hut) entered China, it had to spend heavily to establish itself in that market. What would be a disadvantage of Yum Brands' large-scale entry into China?

E) availability of fewer resources to support expansion in other desirable markets

One disadvantage of large-scale entry into a foreign market is the

E) availability of fewer resources to support expansion in other desirable markets.

Porter's PaleAle is considering small-scale entry into the European market. What would be a disadvantage of small-scale entry for this firm?

E) difficulty of building market share and capturing first-mover advantages

What is an example of an intangible property?

E) patent

Bossy Boots decided to export its products by hiring local marketing agents in each country. Over the years, Bossy Boots ran into various problems with these local marketing agents that affected both sales and profitability. Bossy Boots can overcome its problems with local marketing agents by

E) setting up wholly owned subsidiaries in foreign nations to handle local marketing.