SOM Chapter 13

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Which of the following is a reason why a relatively poor country may be an attractive target for inward investment?

A. Rapid economic growth

B. Political instability

C. Currency depreciation

D. High cost of living

E. Less developed infrastructure

A

Which of the following countries presents a favorable benefit-cost-risk trade-off scenario for foreign expansion?

A. A country ridden by private-sector debt

B. A country with a free market system

C. A country experiencing a dramatic upsurge in inflation rates

D. A country that is heavily populated

E. A country that is less developed and politically unstable

B

Which of the following factors determines the value that an international business can create in a foreign market?

A. Population density in the foreign market

B. Political stability of the foreign market

C. Nature of indigenous competition

D. Per capita income in the foreign market

E. Type of political system in the foreign market

C

In international business, a product that is not widely available in a foreign market and satisfies an unmet need:

A. is likely to have greater value.

B. will have to be priced relatively low.

C. will see a decrease in sales volume.

D. is not suited to that particular market.

E. will fail to make a profit.

A

In which of the following situations can an international business command higher prices for a particular product in a foreign market?

A. When the product is widely available in the foreign market

B. When sales volumes is relatively low in the foreign market

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

D. When the product is more suitable to other foreign markets

E. When domestic competitors are selling alternatives at reduced prices

C

Which of the following is an example of a first-mover advantage?

A. The ability to create switching costs that tie customers into one’s products or services

B. The avoidance of pioneering costs that a later entrant into the foreign market has to bear

C. The increased probability of surviving in a foreign market

D. The opportunity to observe and learn from the mistakes of other entrants

E. The ability to let later entrants ride ahead on the experience curve

A

First-mover disadvantages refer to:

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

B. costs that a late entrant to a foreign market has to bear.

C. a direct restriction on the quantity of a good that can be imported into a country.

D. imperfections in the operation of the market mechanism.

E. disadvantages experienced by being a late entrant in a foreign market.

A

Which of the following is true of the costs and risks associated with doing business in a foreign country?

A. They are greater for late entrants.

B. They are higher in politically democratic nations.

C. They are less pronounced in the case of licensing.

D. They are lower in economically advanced nations.

E. They are called opportunity costs.

D

An early entrant find may find itself at a disadvantage if it:

A. is trying to realize location and experience curve economies.

B. incurs low development costs.

C. faces a subsequent change in business regulations in the host-country.

D. has a core competence based on control over technological know-how.

E. considers a greenfield strategy.

C

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

A. choose to ride on an early entrant’s investments.

B. use countertrade agreements.

C. enter a national market early.

D. ride down the experience curve behind their rivals.

E. avoid pioneering costs.

C

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.

B. avoids the use of countertrade agreements.

C. enters a national market early.

D. enters a foreign market via turnkey projects.

E. avoids engaging in joint ventures.

A

Which of the following is a risk of entering developing nations like India and China on a large scale?

A. Lower potential for long-term rewards

B. Absence of prior foreign entrants

C. Lack of control over quality

D. Fear of rapid imitation of technology

E. High management turnover

B

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

A. create switching costs that tie customers into products or services.

B. capture demand by establishing a strong brand name.

C. build sales volume and ride down the experience curve before early entrants.

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

E. create a cost advantage over first movers.

D

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

A. By licensing their core technologies

B. By entering into turnkey projects

C. By standardizing their product offerings

D. By focusing on market niches

E. By raising trade barriers

D

Which of the following is a disadvantage of large-scale entry into a foreign market?

A. Decrease in a firm’s exposure to the foreign market

B. Difficulty attracting customers and distributors for the product

C. Inability to build rapid market-share irrespective of the scale of entry

D. Limited product acceptance due to the avoidance of potential losses

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

E

Which of the following types of entry into a foreign market allows a firm to learn about the foreign market while limiting the firm’s exposure to that market?

A. Early entry

B. Small-scale entry

C. Large-scale entry

D. Late entry

E. Rapid entry

B

Which of the following is a disadvantage of small-scale entry for an international firm considering foreign expansion?

A. The possibility of escalating commitment leading to major financial losses

B. The limited availability of resources for use in other markets

C. The lack of flexibility associated with strategic commitments

D. The increase in economic exposure due to minimal time spent in evaluating a foreign market

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

E

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

A. necessitates rapid entry into a foreign market.

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

C. leads to escalating strategic commitments.

D. requires that extra time be spent in analyzing a foreign market.

E. leads to increased exposure to a foreign market.

B

Which of the following is the most likely outcome of a foreign firm entering a developed nation on a small scale after other international businesses in the firm’s industry?

A. Capturing first-mover advantages

B. Higher pioneering costs

C. Rapid increase in market share

D. Limited future growth potential

E. Increase in sales volume

D

Which of the following is a course of action suggested by Christopher Bartlett and Sumantra Ghoshal for companies based in developing nations?

A. Build up financial resources to match those of the largest global competitors.

B. Enter foreign markets at a similar time and scale as multinational companies.

C. Enter markets rapidly and exit at an equally rapid pace to avoid heavy losses.

D. Benchmark one’s operations and performance against foreign multinationals.

E. Do not focus on market niches that multinational companies ignore.

D

Which of the following is an advantage of choosing exporting as a mode of entry into foreign markets?

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

B. A firm shares the development costs and risks with its host partner.

C. A firm can earn returns from process technology skills in countries where FDI is restricted.

D. A firm has access to local partner’s knowledge.

E. A firm has the ability to engage in global strategic coordination.

A

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

A. By taking a minority equity interest

B. By entering into a turnkey project with a foreign firm

C. By manufacturing bulk products regionally

D. By setting up subsidiaries irrespective of market reach

E. By reducing the quantity of the product offering

C

In exporting, problems with local marketing agents can be overcome by:

A. selling intangible property to a franchisee and insisting on rules to conduct the business.

B. changing agents frequently.

C. engaging in turnkey projects and exporting process technology to foreign firms.

D. entering into cross-licensing agreements with foreign firms.

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

E

In which of the following modes of entry into foreign markets does a firm agree to set up an operating plant for a foreign client and hand over the plant when it is fully operational?

A. Franchising agreement

B. Turnkey project

C. Licensing agreement

D. Wholly owned subsidiary

E. Joint venture

B

Which of the following describes a turnkey project?

A. Granting rights to intangible property to other firms

B. Establishing firms that are jointly owned by two or more otherwise independent firms

C. Exporting process technology to other countries

D. Setting up wholly owned subsidiaries in foreign nations

E. Selling products produced in one country to residents of other countries

C

Which of the following is an advantage of turnkey projects as a mode of entry into foreign markets?

A. It is an ideal way to gain entry into a country where FDI is not limited by government regulations.

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

C. It is an ideal way to establish a firm’s long-term presence in a foreign country.

D. It helps protect a firm’s competitive advantage.

E. The firm that enters into a turnkey project with a foreign enterprise avoids giving rise to potential competitors.

B

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:

A. selling competitive advantage to competitors.

B. competing with the local firm in the global market.

C. taking a minority equity interest in the operation.

D. withholding vital process technology from the local firm.

E. establishing a joint venture with a local firm.

C

In terms of licensing, which of the following is an intangible property?

A. Infrastructure

B. Machinery

C. Leased equipment

D. Advanced computing systems

E. Patent

E

Licensing is NOT attractive to which of the following firms?

A. Firms lacking the capital to develop operations overseas

B. Firms unwilling to commit substantial financial resources to an unfamiliar market

C. Firms requiring tight control of operations for realizing experience curve and location economies

D. Firms wanting to explore markets but prohibited from doing so by investment barriers

E. Firms with intangible properties with business applications that it does not want to develop itself

C

Which of the following is a drawback of licensing as a mode of entry into foreign markets?

A. The licensor has to bear all costs and risks associated with developing a foreign market.

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

C. Licensing does not benefit firms lacking the capital to expand operations overseas.

D. Licensing deals fail when there are barriers to foreign investment in a particular country.

E. A firm that enters into a licensing deal with a foreign country will have no long-term interest in that country.

B

Which of the following is an example of an industry in which cross-licensing agreements are increasingly becoming common?

A. Glass-blowing

B. Biotechnology

C. Organic farming

D. Basketry

E. Weaving

B

Franchising as a mode of entry into foreign markets is employed primarily by:

A. service firms.

B. manufacturing companies.

C. online outfits.

D. high-technology companies.

E. primary industries.

A

Which of the following is an advantage of franchising as a mode of entry into foreign markets?

A. The franchiser is relieved of many of the costs and risks of opening a foreign market on its own.

B. The franchiser is allowed to take profits out of one country to support competitive attacks in another.

C. The franchiser can easily maintain uniform quality across many geographically dispersed franchisees.

D. Manufacturing concerns can be effectively coordinated across adjacent processes.

E. The franchiser can support its short-term interests in a country with an unstable economy.

A

Which of the following is a disadvantage of franchising?

A. The franchiser has to bear development costs and risks associated with foreign expansion.

B. Franchising leads to undesirable results for service firms.

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

D. The franchiser has no long-term interests in the foreign country.

E. It forces a franchiser to take out profits from one country to support competitive attacks in another.

C

Which of the following is an advantage of joint ventures as a mode of entry into foreign markets?

A. The foreign firm benefits from a local partner’s knowledge of the host country.

B. The foreign firm can protect its technology from being appropriated by its local partner.

C. There is less cause for friction and conflict between the foreign and local partners.

D. It gives a firm tight control over subsidiaries, which enables it to realize experience curve or location economies.

E. The foreign firm does not have to bear any development costs and risks associated with opening a foreign market.

A

What triggers the conflict of interest over strategy and goals in joint ventures?

A. Local partner’s knowledge of host country’s competitive conditions

B. Giving control of core technology to the foreign partner

C. Shifts in relative bargaining power of venture partners

D. Trying to realize location and experience curve economies

E. Risk of being subject to adverse government interference

C

How can a wholly owned subsidiary be established in a foreign market?

A. Through a turnkey operation with a local partner

B. Through franchising

C. By acquiring an established firm in the host nation

D. By exporting

E. Through a licensing agreement

C

Which of the following entry modes into a foreign market best serves a high-tech firm?

A. Turnkey projects

B. Franchising

C. Wholly owned subsidiaries

D. Joint ventures

E. Exporting

C

When should a firm configure its value chain to maximize value at each stage?

A. When government regulations relax

B. When cost pressures are intense

C. When rapid imitation is expected

D. When the number of consumers increases

E. When incumbent competitors exist

B

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

A. engages in global strategic coordination.

B. imposes strict marketing guidelines on how to do business.

C. enters a greenfield venture in the host country.

D. realizes substantial location economies.

E. acquires an established host-country enterprise.

E

Which of the following is true of international firms considering foreign expansion?

A. The timing and scale of entry of foreign expansion are minor details in comparison with the choice of foreign market.

B. The long-run economic benefits of doing business in a country are solely a function of the country’s population size.

C. If the firm’s core competence is based on proprietary technology, entering a joint venture might risk losing control of that technology to the joint-venture partner.

D. The costs and risks associated with foreign expansion are higher in economically advanced nations.

E. Politically unstable and less developed nations offer favorable benefit-cost-risk trade-off conditions.

C

A distinction can be drawn between firms whose core competency is in which of the following?

A. Scale of entry and strategic commitments

B. Location and experience curves

C. Acquisitions and greenfield ventures

D. Technological know-how and management know-how

E. Cost reductions and entry mode

D

Which of the following modes of entry into foreign markets can result in a lack of control over quality?

A. Exporting

B. Franchising

C. Turnkey projects

D. Wholly owned subsidiaries

E. Joint ventures

B

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

A. Threat of creating efficient partners

B. Risk of losing control over technology

C. Fear of rapid imitation of core technology

D. Lack of a transitory technological advantage

E. Inability to deter development costs

B

Axiom International, 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 of the following modes of entry into foreign markets is most suitable for Axiom International?

A. Wholly owned subsidiary

B. Joint venture

C. Exporting

D. Greenfield investments

E. Licensing

B

Jupiter 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 of the following modes of entry would be most favorable to the firm if it wants to keep a tight control over its technology?

A. Wholly owned subsidiary

B. Joint venture

C. Franchising

D. Licensing

E. Turnkey project

A

Which of the following modes of entry is suitable for service firms where the risk of losing control over the management skills or technological know-how is not much of a concern, and where the firms’ valuable asset is their brand name?

A. Exporting

B. Franchising

C. Licensing

D. Turnkey projects

E. Cross-licensing

B

Which of the following is a disadvantage of wholly owned subsidiaries as a mode of entry into foreign markets?

A. Lack of control over quality

B. High costs and risks

C. Problems with local marketing agents

D. Inability to engage in global strategic coordination

E. Lack of control over technology

B

What gives a firm tight control for coordinating a globally dispersed value chain?

A. Signing joint-venture agreements

B. Installing manufacturing units in locations with optimal factor conditions

C. Setting up wholly owned marketing subsidiaries

D. Establishing a greenfield venture

E. Using foreign marketing agents

C

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

A. It gives firms sound knowledge of the local markets, culture, and the political environment.

B. It helps protect competitive advantages based on technology.

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

D. It is the most politically accepted mode of entry into foreign markets.

E. It has the least costs and risks associated with developing a foreign market.

C

Which of the following is an advantage of acquisitions as a means of entering foreign markets?

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

B. It is much easier to change the culture of an existing organization than build a new organization.

C. It is easier to convert the operating routines of acquired units than establish routines in new subsidiaries.

D. They give firms access to valuable intangible assets while minimizing a pileup of tangible assets.

E. Acquired firms are often undervalued and hence assets can be purchased at minimal prices.

A

Which of the following postulates that top managers typically overestimate their ability to create value from an acquisition?

A. Bandwagon effect

B. Fisher effect

C. Hubris hypothesis

D. International Fisher effect

E. Learning effect

C

Which of the following is a reason why firms often overpay for the assets of an acquired firm?

A. Studies supporting the rise of failed companies post acquisitions

B. Evidence of high management turnover post acquisitions

C. The success rate of acquisitions exceeding that of failures

D. Interest of more than one party in acquiring a particular firm

E. Inevitable clash between cultures of acquiring and acquired firms

D

Why do acquisitions fail sometimes?

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

B. Acquisitions take a long time to execute.

C. Acquisitions are easily preempted by making greenfield investments.

D. The revenue and profit stream generated by an acquisition’s resources is usually unknown.

E. Losses produced by intangible assets outweigh profits from acquired tangible assets.

A

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

A. managers overestimate their ability to create value from an acquisition.

B. integration of operations between the two firms takes longer than forecasted.

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

D. an acquiring firm overpays for the assets of an acquired firm.

E. inadequate pre-acquisition screening has been done.

C

The risk of failure of an acquisition can be reduced by:

A. undervaluing the assets of an acquired firm.

B. ensuring that firms are acquired in the home country.

C. replacing high-level managers of an acquired firm.

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

E. investing only in a firm that is managing to break even.

D

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

A. pay more for the acquired unit to please its existing employees.

B. encourage and facilitate management turnover.

C. acquire a firm without wasting time on screening.

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

E. ensure that the work cultures are significantly different from each other.

D

Which of the following is a disadvantage of greenfield ventures?

A. They have a higher potential for throwing up unpleasant surprises.

B. It is much more difficult to build an organizational culture from scratch than to change the culture of an existing unit.

C. Companies find it difficult to avoid falling into the trap of the hubris hypothesis.

D. It is slower to establish than acquisitions.

E. A firm does not have the freedom to build the kind of subsidiary that it wants.

D

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.

B. licensing deal.

C. greenfield venture.

D. turnkey project.

E. exporting deal.

A

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

B. Joint venture

C. Licensing agreement

D. Franchising deal

E. Turnkey project

A

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