International Business Chapter 12

International Business, 6e (Griffin/Pustay) Chapter 12 Strategies for Analyzing and Entering Foreign Markets 1) Which of the following is not one of the three steps in increasing market share, revenue, and profits? A) Assess alternative markets. B) Evaluate respective costs, benefits, and risks. C) Perform a situation analysis. D) Select market with most potential for entry or expansion. E) All are relevant steps. Answer: C Diff: 2 Page Ref: 332 Objective: 12.1: Discuss how firms analyze foreign markets. 2) Starbucks uses all of the following entry methods in its international operations except ________. A) wholly owned subsidiaries B) licensing agreements C) franchising agreements D) joint ventures E) Starbucks uses all of the above methods Answer: C Diff: 3 Page Ref: 332 Skill: AACSB: Globalization Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 3) Which of the following factors is commonly considered when assessing alternative foreign markets? A) current size of market B) potential size of market C) competitive levels in market D) legal and political environment in market E) all of the above Answer: E Diff: 1 Page Ref: 333 Skill: AACSB: Globalization Objective: 12.1: Discuss how firms analyze foreign markets.

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4) What is the first step in selecting a foreign market? A) assessing market potential B) assessing the level of competition C) monitoring major markets D) evaluating host country's trade policies E) assessing general legal and political environments Answer: A Diff: 2 Page Ref: 334 Skill: AACSB: Globalization Objective: 12.1: Discuss how firms analyze foreign markets. 5) Which of the following is not a critical factor in assessing new market opportunities? A) product-market dimensions B) potential target markets C) success factors D) potential for worldwide learning E) product-market differences Answer: D Diff: 2 Page Ref: 333 Objective: 12.1: Discuss how firms analyze foreign markets. 6) Objective measures of the potential for growth in an economy include all of the following except ________. A) GDP B) ownership of private automobiles C) changes in per capita income D) energy consumption E) impact of changes in political regime Answer: E Diff: 2 Page Ref: 334 Objective: 12.1: Discuss how firms analyze foreign markets. 7) Which of the following factors is not used to assess the competitive environment in a foreign market? A) the number of existing firms B) the size of existing firms C) current advertising strategies D) relative market shares E) existing pricing and distribution strategies Answer: C Diff: 2 Page Ref: 334 Skill: AACSB: Globalization Objective: 12.1: Discuss how firms analyze foreign markets.

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8) A firm might choose to forgo exporting to a foreign market when ________. A) the current size of market is small B) many other firms are already exporting C) there are high trade barriers D) the company wants to use the market as a platform to other markets E) the firm's existing foreign operations are geographically distant Answer: C Diff: 2 Page Ref: 335 Skill: AACSB: Globalization Objective: 12.1: Discuss how firms analyze foreign markets. 9) ________ refer to expenses incurred by the firm as it enters a new foreign market. A) Indirect costs B) Direct costs C) Opportunity costs D) Variable costs E) All of the above Answer: B Diff: 1 Page Ref: 336 Objective: 12.1: Discuss how firms analyze foreign markets. 10) Because a firm has limited resources, entering one market may preclude its entry into another. What type of cost is reflected in this situation? A) indirect costs B) direct costs C) opportunity costs D) variable costs E) all of the above Answer: C Diff: 1 Page Ref: 336 Skill: AACSB: Globalization Objective: 12.1: Discuss how firms analyze foreign markets. 11) Costs associated with setting up a business operation, transferring managers to run it, and shipping equipment and merchandise are all examples of which type of cost? A) opportunity costs B) set-up costs C) direct costs D) indirect costs E) opening costs Answer: C Diff: 2 Page Ref: 336 Objective: 12.1: Discuss how firms analyze foreign markets.

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12) All of the following are potential benefits of entering a new market except ________. A) elimination of synergy with other operations B) expected sales and profits C) lower acquisition and manufacturing costs D) foreclosing of markets to competitors E) access to new technology Answer: A Diff: 2 Page Ref: 336 Objective: 12.1: Discuss how firms analyze foreign markets. 13) Which theory listed below is useful in deciding which mode of entry to use when entering foreign markets? A) ownership advantage theory B) internalization theory C) eclectic theory D) relative factor endowments E) national competitive advantage Answer: C Diff: 2 Page Ref: 337 Objective: 12.1: Discuss how firms analyze foreign markets. 14) Which of the following should be considered when choosing a mode of entry? A) ownership advantages B) location advantages C) internalization advantages D) need for control E) all of the above Answer: E Diff: 1 Page Ref: 337 Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 15) Which of the following is not one of the decision factors in the choice of entry mode? A) ownership advantages B) location advantages C) national competitive advantages D) internalization advantages E) resource availability Answer: C Diff: 3 Page Ref: 337 Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market.

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16) The informational, political, and cultural disadvantages that foreign firms face when trying to compete against local firms in the host country market are referred to as ________. A) opportunity costs B) liability of foreignness C) internalization disadvantages D) ownership liability E) the burden of internationalization Answer: B Diff: 1 Page Ref: 338 Skill: AACSB: Globalization Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 17) Which of the following is not a mode of entry into foreign markets? A) exporting B) importing C) international licensing D) international franchising E) greenfield strategy Answer: B Diff: 1 Page Ref: 337 Skill: AACSB: Globalization Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 18) ________ are tangible or intangible resources owned by a firm which grant it a competitive advantage over its industry rivals. A) Ownership advantages B) Location advantages C) National competitive advantages D) Internalization advantages E) Resource availabilities Answer: A Diff: 2 Page Ref: 337 Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market.

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19) ________ are those factors that affect the desirability of host country production relative to home country production. A) Ownership advantages B) Location advantages C) National competitive advantages D) Internalization advantages E) Resource availabilities Answer: B Diff: 2 Page Ref: 338 Skill: AACSB: Globalization Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 20) When the host country is found to be more desirable for production than the home country, which mode of entry will the firm most likely choose? A) exporting B) international licensing C) foreign direct investment D) both A and B E) both B and C Answer: E Diff: 3 Page Ref: 338 Skill: AACSB: Globalization Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 21) ________ are those that make it desirable for a firm to produce a good or service itself rather than contracting with another firm to produce it. A) Ownership advantages B) Location advantages C) National competitive advantages D) Internalization advantages E) Resource availabilities Answer: D Diff: 2 Page Ref: 338 Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market.

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22) Toyota's efficient manufacturing techniques and reputation for producing high-quality automobiles are examples of ________. A) location advantages B) ownership advantages C) internalization advantages D) legal advantages E) internationalization advantages Answer: B Diff: 2 Page Ref: 338 Skill: AACSB: Globalization Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 23) Which entry mode is used frequently by pharmaceutical firms? A) exporting B) licensing C) greenfield strategy D) management contract E) franchising Answer: B Diff: 2 Page Ref: 338 Skill: AACSB: Globalization Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 24) The choice of entry mode is a trade-off between the level of risk borne by the firm and ________. A) potential rewards possible B) magnitude of resource commitment necessary C) level of control sought by the firm D) all of the above E) none of the above Answer: D Diff: 2 Page Ref: 340 Skill: AACSB: Globalization Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market.

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25) ________ is the most common form of international business activity. A) Exporting B) Licensing C) Greenfield strategy D) Management contract E) Franchising Answer: A Diff: 2 Page Ref: 340 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 26) Exporting offers all of the following advantages except ________. A) relatively low financial exposure B) gradual market entry C) opportunity to gain knowledge about the local market D) logistical complexities E) avoidance of restrictions on foreign investments Answer: D Diff: 2 Page Ref: 340 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 27) ________ are those that pull a firm into foreign markets as a result of opportunities available there. A) Reactive motivations B) Proactive motivations C) Opportunity motivations D) Avoidance motivations E) Attraction motivations Answer: B Diff: 1 Page Ref: 340 Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods.

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28) ________ for exporting are those that push a firm into foreign markets. A) Reactive motivations B) Proactive motivations C) Opportunity motivations D) Avoidance motivations E) Attraction motivations Answer: A Diff: 1 Page Ref: 341 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 29) Which of the following is not a disadvantage of exporting? A) vulnerability to tariffs B) logistical complexities C) potential conflicts with distributors D) gradual market entry E) vulnerability to NTBs Answer: D Diff: 2 Page Ref: 341 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 30) Which of the following is not an advantage of licensing? A) low financial risks B) low-cost way to assess market potential C) reduced control D) avoidance of tariffs E) knowledge of local markets Answer: C Diff: 2 Page Ref: 341 Skill: AACSB: Globalization Objective: 12.4: Identify the basic issues in international licensing and discuss the advantages and disadvantages of licensing. 31) Which of the following is an advantage of franchising? A) limited market opportunity B) avoidance of tariffs C) dependence on franchisee D) potential conflicts with franchisee E) possibility of creating future competitor Answer: B Diff: 1 Page Ref: 341 Objective: 12.5: Identify the basic issues in international franchising and discuss the advantages and disadvantages of franchising.

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32) Which mode of entry has the potential to create a future competitor? A) licensing B) exporting C) turnkey project D) contract manufacturing Answer: A Diff: 3 Page Ref: 341 Objective: 12.4: Identify the basic issues in international licensing and discuss the advantages and disadvantages of licensing. 33) Which of the following is an advantage of foreign direct investment? A) high financial investments B) high exposure to political risk C) high profit potential D) greater managerial complexity E) vulnerability to restrictions on foreign investment Answer: C Diff: 1 Page Ref: 341 Skill: AACSB: Globalization Objective: 12.7: Characterize the greenfield and acquisition forms of FDI. 34) A company engages in indirect exporting A) sells to a domestic customer which then sells to a foreign customer B) sells directly to the foreign customer C) sells to an affiliated company D) sells to a foreign customer only after serving domestic customers Answer: A Diff: 2 Page Ref: 342 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 35) ________ occur(s) when a firm sells its products to a domestic customer, which in turn exports the product, in either its original form or a modified form. A) Indirect exporting B) Direct exporting C) Intercorporate transfers D) Intracorporate transfers E) All are forms of exporting. Answer: A Diff: 2 Page Ref: 342 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods.

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36) When Hewlett-Packard buys microchips from Intel to use in manufacturing computers and then exports the completed computers to Europe, ________ has occurred. A) indirect exporting of Intel's chips B) direct exporting of Intel's chips C) an intercorporate transfer of Intel's chips D) an intracorporate transfer of Intel's chips E) none of the above Answer: A Diff: 3 Page Ref: 342 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 37) ________ occur(s) through sales to customers located outside the firm's home country. A) Indirect exporting B) Direct exporting C) Intercorporate transfers D) Intracorporate transfers E) All are forms of exporting. Answer: B Diff: 2 Page Ref: 343 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 38) ________ is/are the sale of goods by a firm in one country to an affiliated firm in another country. A) Indirect exporting B) Direct exporting C) Intercorporate transfers D) Intracorporate transfers E) All are forms of exporting. Answer: D Diff: 2 Page Ref: 345 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods.

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39) When British Petroleum ships crude oil from its storage facilities in Kuwait to its Australian subsidiary, ________ has occurred. A) indirect exporting B) direct exporting C) an intracorporate transfer D) an intercorporate transfer E) an interfirm transfer Answer: C Diff: 3 Page Ref: 345 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 40) Which form of exporting is used by firms in order to lower their production costs? A) indirect exporting B) direct exporting C) intercorporate transfers D) intracorporate transfers E) interfirm transfers Answer: D Diff: 3 Page Ref: 345 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 41) The imposition of ________ discourages international firms from relying on exports as an entry mode. A) tariffs B) export promotion policies C) export financing programs D) home country subsidization E) all of the above Answer: A Diff: 2 Page Ref: 345 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods.

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42) Which of the following marketing concerns affect the decision to export? A) image B) distribution C) customer responsiveness D) need for customer feedback E) all of the above Answer: E Diff: 2 Page Ref: 345 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 43) What are the third parties that specialize in facilitating imports and exports called? A) intermediaries B) wholesalers C) retailers D) exporters E) distributors Answer: A Diff: 2 Page Ref: 347 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 44) ________ offer services including export management companies, Webb-Pomerene associations, and international trading companies. A) Intermediaries B) Wholesalers C) Retailers D) Exporters E) Distributors Answer: A Diff: 2 Page Ref: 347 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods.

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45) A(n) ________ is a firm that acts as its client's export department. A) Webb-Pomerene association B) Greenfield organization C) export management company D) international trading company E) management broker Answer: C Diff: 1 Page Ref: 347 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 46) Which of the following duties is handled by export management companies? A) shipping B) clearing customs C) document preparation D) advice about consumer needs E) all of the above Answer: E Diff: 1 Page Ref: 347 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 47) When an EMC acts as a commission agent for exporters ________. A) they handle export financing B) they handle marketing C) they handle shipping and customs clearing D) they take title to the goods E) they make their profits form reselling the goods Answer: C Diff: 2 Page Ref: 347 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods.

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48) A(n) ________ is a group of U.S. firms that operate within the same industry and that are allowed by law to coordinate their export activities without fear of violating U.S. antitrust laws. A) Webb-Pomerene association B) Greenfield organization C) export management company D) international trading company E) management broker Answer: A Diff: 2 Page Ref: 347 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 49) Which of the following activities is commonly performed by Webb-Pomerene associations? A) market research B) overseas promotional activities C) freight consolidate D) contract negotiations E) all of the above Answer: E Diff: 2 Page Ref: 347 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 50) A(n) ________ is a firm directly engaged in importing and exporting a wide variety of goods for its own account. A) Webb-Pomerene association B) Greenfield organization C) export management company D) international trading company E) management broker Answer: D Diff: 1 Page Ref: 347 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods.

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51) Which of the following services is provided by international trading companies? A) market research B) customs documentation C) international transportation D) host country distribution E) all of the above Answer: E Diff: 2 Page Ref: 347 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 52) Where are the world's most important international trading companies located? A) the United States B) Germany C) Japan D) Canada E) China Answer: C Diff: 3 Page Ref: 348 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 53) A sogo sosha is A) an export management company B) another term for a Webb-Pomerene association C) another term for a keiretsu D) international trading company E) a management broker Answer: D Diff: 2 Page Ref: 348 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 54) Which of the following is not an advantage of sogo sosha? A) access to information about economic conditions worldwide B) ready access to financing C) built-in source of customers D) economies of scale in transportation E) All of the above are advantages. Answer: E Diff: 2 Page Ref: 348 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 16

55) Which of the following solicits domestic orders for foreign manufacturers on a commission basis? A) manufacturers' agent B) export and import broker C) freight forwarder D) manufacturers' export agent E) sogo sosha Answer: A Diff: 1 Page Ref: 348 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 56) The ________ acts as a foreign sales department for domestic manufacturers by selling those firms' goods in foreign markets. A) manufacturers' agent B) export and import broker C) freight forwarder D) manufacturers' export agent E) sogo sosha Answer: D Diff: 1 Page Ref: 348 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 57) ________ can bring together international buyers and sellers of standardized commodities like coffee and grains. A) A manufacturers' agent B) An export and import broker C) A freight forwarder D) A manufacturers' export agent E) A sogo sosha Answer: B Diff: 1 Page Ref: 348 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods.

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58) ________ specialize in the physical transportation services for their clients. A) Manufacturers' agents B) Export and import brokers C) Freight forwarders D) Manufacturers' export agents E) Sogo sosha Answer: C Diff: 1 Page Ref: 348 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 59) The Mitsubishi Corporation is a firm that is directly engaged in importing and exporting a wide variety of goods for its own account and is a part of a keiretsu system. What type of export intermediary is it? A) export management company B) Webb-Pomerene association C) sogo sosha D) freight forwarder E) export and import broker Answer: C Diff: 3 Page Ref: 349 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 60) The Nintendo Company manufactures electronic video game players and game cartridges. Nintendo provides game designers with technical specifications for how its game players work. The design firms create the games and then pay Nintendo a fee to manufacture those games. What mode of entry is described in this example? A) exporting B) franchising C) licensing D) greenfield strategy E) joint venture Answer: C Diff: 3 Page Ref: 348 Skill: AACSB: Globalization Objective: 12.4: Identify the basic issues in international licensing and discuss the advantages and disadvantages of licensing.

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61) The firm that leases the right to use intellectual property is called ________. A) the leasee B) the leasor C) the licensor D) the licensee E) the franchisee Answer: C Diff: 1 Page Ref: 348 Objective: 12.4: Identify the basic issues in international licensing and discuss the advantages and disadvantages of licensing. 62) Which is not a part of the licensing process? A) the boundaries of the agreement B) establishment of the compensation rates C) agreement on the rights, privileges, and constraints conveyed in the agreement D) specification of the duration of the agreement E) all of the above are part of the licensing process Answer: E Diff: 2 Page Ref: 350 Objective: 12.4: Identify the basic issues in international licensing and discuss the advantages and disadvantages of licensing. 63) How are royalties determined in licensing agreements? A) flat fee B) fixed amount per unit sold C) percentage of sales D) all of the above E) only B and C Answer: D Diff: 2 Page Ref: 350 Objective: 12.4: Identify the basic issues in international licensing and discuss the advantages and disadvantages of licensing. 64) All of the following are disadvantages of licensing except ________. A) licensing offers low financial risk B) licensing limits market opportunities C) licensing creates co-dependency D) licensing could create a future competitor E) All of the above are disadvantages of licensing. Answer: A Diff: 2 Page Ref: 351 Objective: 12.4: Identify the basic issues in international licensing and discuss the advantages and disadvantages of licensing.

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65) In a franchise agreement, what does the franchisor provide to the franchisee? A) intellectual property (such as brand name) B) operating systems C) advertising support service D) training E) all of the above Answer: E Diff: 2 Page Ref: 352 Objective: 12.5: Identify the basic issues in international franchising and discuss the advantages and disadvantages of franchising. 66) As compared to franchising, licensing offers ________. A) a similar level of control B) a higher level of control C) a lower level of control D) greater support E) similar support Answer: C Diff: 2 Page Ref: 353 Objective: 12.5: Identify the basic issues in international franchising and discuss the advantages and disadvantages of franchising. 67) When is international franchising most likely to succeed? A) when the franchisor has unique products B) when the franchisor has an advantageous operating procedure C) when success factors are easily transferable to foreign markets D) when foreign investors are interested in entering into franchise agreements E) all of the above Answer: E Diff: 1 Page Ref: 352 Skill: AACSB: Globalization Objective: 12.5: Identify the basic issues in international franchising and discuss the advantages and disadvantages of franchising. 68) A ________ is used by firms that outsource most or all of their manufacturing needs to other companies. A) management contract B) turnkey project C) contract manufacturing strategy D) greenfield strategy E) licensing Answer: C Diff: 2 Page Ref: 353 Objective: 12.6: Analyze contract manufacturing, management contracts, and turnkey operations as specialized entry modes for international business.

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69) A ________ is an agreement whereby one firm provides managerial assistance, technical expertise, or specialized services to a second firm for some agreed-upon time in return for monetary compensation. A) management contract B) turnkey project C) contract manufacturing strategy D) greenfield strategy E) licensing Answer: A Diff: 2 Page Ref: 354 Objective: 12.6: Analyze contract manufacturing, management contracts, and turnkey operations as specialized entry modes for international business. 70) A ________ is a contract under which a firm agrees to fully design, construct, and equip a facility and then turn the project over to the purchaser when it is ready for operation. A) management contract B) turnkey project C) contract manufacturing strategy D) greenfield strategy E) licensing Answer: B Diff: 2 Page Ref: 355 Objective: 12.6: Analyze contract manufacturing, management contracts, and turnkey operations as specialized entry modes for international business. 71) What type of construction project commonly involves the use of an international turnkey contract? A) nuclear power plant B) airport C) oil refinery D) all of the above E) both A and B Answer: D Diff: 2 Page Ref: 355 Skill: AACSB: Globalization Objective: 12.6: Analyze contract manufacturing, management contracts, and turnkey operations as specialized entry modes for international business.

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72) A ________ means that the firm builds a facility, operates it, and later transfers ownership of the project to some other party. A) management contract B) BOT project C) contract manufacturing strategy D) greenfield strategy E) license Answer: B Diff: 2 Page Ref: 355 Objective: 12.6: Analyze contract manufacturing, management contracts, and turnkey operations as specialized entry modes for international business. 73) Which of the following is a method for foreign direct investment? A) building new facilities B) buying existing assets in a foreign country C) participating in a joint venture D) acquisition strategy E) all of the above Answer: E Diff: 1 Page Ref: 357 Skill: AACSB: Globalization Objective: 2.1: Evaluate the impact of the political and economic characteristics of the world's various marketplaces on the opportunities available to international businesses. 74) A greenfield strategy can be beneficial because of all of the following except ________. A) it allows the firm to select the site that meets its needs B) the firm can construct modern facilities C) the firm starts with a clean slate D) the firm can acclimate itself with the new culture at its own pace E) the firm must comply with local and national regulations Answer: E Diff: 2 Page Ref: 357 Objective: 12.7: Characterize the greenfield and acquisition forms of FDI. 75) When two or more firms agree to work together and create a joint owned firm to promote mutual interest, ________ has occurred. A) an acquisition B) a greenfield investment C) a joint venture D) a licensing agreement E) a franchise agreement Answer: C Diff: 1 Page Ref: 358 Objective: 12.7: Characterize the greenfield and acquisition forms of FDI.

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76) Assessing market potential is the second step in the process of foreign market analysis. Answer: FALSE Diff: 1 Page Ref: 326 Skill: AACSB: Globalization Objective: 12.1: Discuss how firms analyze foreign markets. 77) A firm specializing in low-priced, lower-quality goods could find a poorer market more attractive than a richer one. Answer: TRUE Diff: 2 Page Ref: 334 Skill: AACSB: Globalization Objective: 12.1: Discuss how firms analyze foreign markets. 78) Firms should use both objective and subjective measures when considering the potential for growth in an economy. Answer: TRUE Diff: 2 Page Ref: 334 Objective: 12.1: Discuss how firms analyze foreign markets. 79) Trade policies usually have little effect on a firm's choice of entry mode. Answer: FALSE Diff: 2 Page Ref: 335 Skill: AACSB: Globalization Objective: 12.1: Discuss how firms analyze foreign markets. 80) Government stability is an important factor in foreign market assessment. Answer: TRUE Diff: 1 Page Ref: 336 Skill: AACSB: Globalization Objective: 12.1: Discuss how firms analyze foreign markets. 81) Firms can reduce the uncertainty associated with sociocultural influences by focusing their internationalization efforts in countries that are culturally similar to their own. Answer: TRUE Diff: 2 Page Ref: 336 Skill: AACSB: Globalization Objective: 12.1: Discuss how firms analyze foreign markets. 82) Indirect costs are those the firm incurs in entering a new market and include costs associated with setting up a business operation. Answer: FALSE Diff: 2 Page Ref: 336 Objective: 12.1: Discuss how firms analyze foreign markets.

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83) Dunning's eclectic theory is useful in understanding which mode of entry to use. Answer: TRUE Diff: 2 Page Ref: 337 Skill: AACSB: Globalization Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 84) When deciding which mode of entry to use, a firm must consider things like ownership advantages, location advantages, and internalization advantages. Answer: TRUE Diff: 1 Page Ref: 337 Skill: AACSB: Globalization Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 85) Ownership advantages are always tangible resources. Answer: FALSE Diff: 2 Page Ref: 337 Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 86) Liability of foreignness refers to the internalization advantages that make it desirable to produce a good or service in-house. Answer: FALSE Diff: 2 Page Ref: 338 Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 87) Embedded technology is often best transferred through an equity mode. Answer: TRUE Diff: 2 Page Ref: 338 Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 88) Pharmaceutical firms routinely use licensing as their entry mode. Answer: TRUE Diff: 1 Page Ref: 339 Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 89) Exporting is the most complicated mode of internationalizing due to the issue of tariffs and nontariff barriers. Answer: FALSE Diff: 2 Page Ref: 340 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 24

90) One disadvantage of exporting is that it forces the firm to enter the foreign market quickly. Answer: TRUE Diff: 2 Page Ref: 340 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 91) Foreign direct investment offers both high profit potential and high financial risk. Answer: TRUE Diff: 1 Page Ref: 341 Skill: AACSB: Globalization Objective: 12.7: Characterize the greenfield and acquisition forms of FDI. 92) Reactive motivations for exporting are those that pull a firm into foreign markets as a result of opportunities available there. Answer: FALSE Diff: 2 Page Ref: 341 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 93) Intracorporate transfers are common in the service sector. Answer: TRUE Diff: 2 Page Ref: 345 Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 94) Export management companies always take title to the goods. Answer: FALSE Diff: 2 Page Ref: 347 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 95) Webb-Pomerene associations play a major role in international business. Answer: FALSE Diff: 3 Page Ref: 347 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 96) The most important trading companies in the global marketplace are Japan's keiretsu. Answer: TRUE Diff: 3 Page Ref: 348 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 25

97) Manufacturers' agents specialize in the physical transportation of goods. Answer: FALSE Diff: 1 Page Ref: 348 Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 98) Royalties are determined most commonly as a percentage of the sales of the licensed products. Answer: TRUE Diff: 1 Page Ref: 350 Objective: 12.4: Identify the basic issues in international licensing and discuss the advantages and disadvantages of licensing. 99) When the licensor fully investigates market opportunities and the abilities of its licensees, licensing has a relatively low financial risk. Answer: FALSE Diff: 3 Page Ref: 351 Skill: AACSB: Globalization Objective: 12.4: Identify the basic issues in international licensing and discuss the advantages and disadvantages of licensing. 100) The greater the investment costs incurred by the licensee, the longer is the likely duration of the licensing agreement. Answer: TRUE Diff: 2 Page Ref: 351 Objective: 12.4: Identify the basic issues in international licensing and discuss the advantages and disadvantages of licensing. 101) International franchising is among the fastest growing forms of international business. Answer: TRUE Diff: 2 Page Ref: 352 Skill: AACSB: Globalization Objective: 12.5: Identify the basic issues in international franchising and discuss the advantages and disadvantages of franchising. 102) McDonald's, Pizza Hut, and KFC all rely on franchising for their international expansion. Answer: TRUE Diff: 3 Page Ref: 353 Skill: AACSB: Globalization Objective: 12.5: Identify the basic issues in international franchising and discuss the advantages and disadvantages of franchising.

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103) Management contracts are attractive because they allow firms to earn additional revenues without incurring any investment risks or obligations. Answer: TRUE Diff: 2 Page Ref: 354 Objective: 12.6: Analyze contract manufacturing, management contracts, and turnkey operations as specialized entry modes for international business. 104) When there is overcapacity in an industry, acquisition is best strategy. Answer: TRUE Diff: 2 Page Ref: 357 Objective: 12.7: Characterize the greenfield and acquisition forms of FDI. 105) The number of joint ventures being formed today is on the decline. Answer: FALSE Diff: 2 Page Ref: 358 Objective: 12.7: Characterize the greenfield and acquisition forms of FDI. 106) Name five critical factors in assessing new market opportunities. Answer: There are several factors listed in Table 12.1. They are product-market dimensions, major product-market differences, structural characteristics of the national product market, competitor analysis, potential target markets, relevant trends, explanation of change, success factors, and strategic options. Diff: 2 Page Ref: 333 Objective: 12.1: Discuss how firms analyze foreign markets. 107) What are the major competitor characteristics that should be analyzed when conducting a competitor analysis? Answer: Major competitor characteristics that should be considered include the competitor's size, capacity utilization, strengths and weaknesses, technology, supply sources, preferential market arrangements, and relations with the government. An analysis should also include competitor performance in terms of market share, sales growth, and profit margins. Diff: 3 Page Ref: 333 Objective: 12.1: Discuss how firms analyze foreign markets. 108) Which risks should international businesses be aware of when considering new markets? Answer: A firm entering a new market should be aware of the risks of exchange rate fluctuations, additional operating complexity, and direct financial losses resulting from inaccurate assessment of market potential. Diff: 2 Page Ref: 337 Skill: AACSB: Globalization Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market.

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109) What are direct and opportunity costs? Answer: Direct costs are those the firm incurs in entering a new foreign market and include costs associated with setting up a business operation. Opportunity costs are the costs of missing other opportunities by virtue of entering one market rather than another. Diff: 1 Page Ref: 336 Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 110) What are the five primary types of entry modes for foreign markets? Answer: The five primary ways to enter a foreign market include exporting, international licensing, international franchising, specialized modes, and foreign direct investment. Diff: 2 Page Ref: 337 Skill: AACSB: Globalization Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 111) What are the three types of foreign direct investment? Answer: The three types of foreign direct investment are greenfield strategy, acquisition strategy, and joint venture. Diff: 2 Page Ref: 357 Skill: AACSB: Globalization Objective: 12.7: Characterize the greenfield and acquisition forms of FDI. 112) What is liability of foreignness? Answer: Liability of foreignness reflects the informational, political, and cultural disadvantages that foreign firms face when competing against local firms in the host market. Diff: 1 Page Ref: 338 Skill: AACSB: Globalization Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 113) What is the meaning of ownership advantages? Give an example. Answer: Ownership advantages are tangible or intangible resources owned by a firm which grant a competitive advantage over its industry rivals. An example is the brand image and luxurious reputation of Dom Perignon champagne. Diff: 2 Page Ref: 337 Skill: AACSB: Globalization Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 114) Explain the meaning of internalization advantages. Answer: Internalization advantages are those that make it desirable for a firm to produce a good or service in-house rather than contracting with another firm to produce it. Diff: 2 Page Ref: 338 Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market.

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115) Why might an exporter hire a local distributor? Answer: Firms, especially those that are just beginning to export, often lack the expertise to market their products abroad, and so seek a local distributor to handle their products. Diff: 2 Page Ref: 346 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 116) What are the two ways EMCs operate? Answer: EMCs can act as commission agents where they handle the details of shipping, clearing customs, an documentation in exchange for an agreed-upon fee, or they can take title to the goods and resell them at a higher price. Diff: 2 Page Ref: 347 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 117) What are the advantages and disadvantages of contract manufacturing? Answer: Its advantages are low financial risk, minimal required resources devoted to manufacturing, and the ability to focus firm's resources on other areas of the value chain. Its disadvantages are reduced control, reduced learning potential, and potential public relations problems. Diff: 2 Page Ref: 354 Objective: 12.6: Analyze contract manufacturing, management contracts, and turnkey operations as specialized entry modes for international business. 118) What is indirect exporting? Answer: Indirect exporting occurs when a firm sells its product to a domestic customer, which in turn exports the product, either in its original form or a modified form. Diff: 1 Page Ref: 342 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 119) What is an intracorporate transfer? Answer: An intracorporate transfer is the sale of goods by a firm in one country to an affiliated firm in another. Diff: 1 Page Ref: 345 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods.

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120) Why might exporters market and distribute their goods in international markets using export intermediaries? Answer: Export intermediaries are third parties that specialize in facilitating imports and exports. They offer many services such as transportation and documentation. They may also take on many other broad responsibilities. Diff: 1 Page Ref: 347 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 121) What service do manufacturers' agents provide? Answer: Manufacturers' agents solicit domestic orders for foreign manufacturers, usually on a commission basis. Diff: 1 Page Ref: 348 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 122) What service is provided by manufacturers' export agents? Answer: They act as foreign sales departments for domestic manufacturers, selling those firms' goods in foreign markets. Diff: 1 Page Ref: 348 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 123) What service is provided by export and import brokers? Answer: They bring together international buyers and sellers of such standardized commodities as coffee, cocoa, and grains. Diff: 1 Page Ref: 348 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 124) What service is provided by freight forwarders? Answer: They specialize in the physical transportation of goods, arranging customs documentation, and obtaining transportation services for their clients. Diff: 1 Page Ref: 348 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods.

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125) What are the advantages and disadvantages of international licensing? Answer: Licensing carries relatively low financial risk. It allows the licensor to learn more about the sales potential of its products in a new market without significant commitment of financial and managerial resources. However, it limits market opportunities for both parties. It requires interdependence between the parties because they are both involved in maintaining product quality and promoting brand image. Diff: 2 Page Ref: 351 Skill: AACSB: Globalization Objective: 12.4: Identify the basic issues in international licensing and discuss the advantages and disadvantages of licensing. 126) What are the basic issues addressed in a legal contract for a licensing agreement? Answer: The basic issues covered in the legal contract should include 1) specifying the boundaries of the agreement, 2) determining compensation, 3) establishing rights, privileges, and constraints, and 4) specifying the duration of the contract. Diff: 3 Page Ref: 350 Objective: 12.4: Identify the basic issues in international licensing and discuss the advantages and disadvantages of licensing. 127) What is a B-O-T project? Answer: A B-O-T project is a variation of the turnkey project in which the firm builds a facility, operates it, and late transfers ownership of the project to some other party. Diff: 2 Page Ref: 355 Objective: 12.6: Analyze contract manufacturing, management contracts, and turnkey operations as specialized entry modes for international business. 128) Why are international turnkey projects usually administered by large construction firms? Answer: International turnkey projects are usually administered by large construction firms because they often involve large, complex, multiyear projects like the construction of a nuclear power plant, an airport, or an oil refinery.. Diff: 2 Page Ref: 355 Skill: AACSB: Globalization Objective: 12.6: Analyze contract manufacturing, management contracts, and turnkey operations as specialized entry modes for international business. 129) Which form of market entry should a firm use when it needs to coordinate the activities of its foreign subsidiaries to achieve strategic synergies? Answer: When a firm needs to coordinate the activities of its foreign subsidiaries to achieve strategic synergies it should expand through foreign direct investment. Diff: 2 Page Ref: 356 Skill: AACSB: Globalization Objective: 12.7: Characterize the greenfield and acquisition forms of FDI.

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130) Which type of foreign direct investment did Disney use when it expanded its theme park to France? Answer: Disney built its Paris theme park using a greenfield investment. Diff: 2 Page Ref: 357 Skill: AACSB: Globalization Objective: 12.7: Characterize the greenfield and acquisition forms of FDI. 131) What is a brownfield strategy? Answer: A brownfield strategy involves buying existing assets in a foreign country. Diff: 2 Page Ref: 357 Skill: AACSB: Globalization Objective: 12.7: Characterize the greenfield and acquisition forms of FDI. 132) What are the advantages of exporting? Answer: Exporting offers a firm two advantages. First, the firm can control its financial exposure to the host country market as it deems appropriate. Little or no capital investment may be needed. Second, exporting permits a firm to enter a foreign market gradually. A firm can then monitor its success prior to more extensive entry into that market. Diff: 2 Page Ref: 340 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods. 133) What are the steps involved in foreign market analysis? Answer: When assessing foreign markets, firms must first assess alternative markets. This process involves considering market potential, levels of competition, the legal and political environment, and sociocultural influences. Then, the firm should evaluate the respective costs, benefits, and risks of entering each, and finally, select those that hold the most potential for entry or expansion. Diff: 2 Page Ref: 332 Skill: AACSB: Globalization Objective: 12.2: Outline the process by which firms choose their mode of entry into a foreign market. 134) What are sogo soshas? What advantages do they offer exporters? Give three examples of prominent sogo soshas. Answer: A sogo sosha is an international trading company. Sogo soshas are part of Japan's keiretsu system. They have access to information about economic conditions and business opportunities in virtually every corner of the world. Because of their link to a keiretsu, they have ready access to financing and a built-in source of customers. They have a low-cost structure and international expertise. The five largest sogo sosha are Mitsubishi Corporation, Mitsui and Company, Itochu Corporation, Sumitomo Group, and Marubeni. Diff: 3 Page Ref: 348 Skill: AACSB: Globalization Objective: 12.3 Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods.

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135) Explain the licensing process. Answer: In a licensing agreement, the licensor leases the rights to use its intellectual property to the licensee. The licensee uses the intellectual property to create products for local sale. It then pays a royalty back to the licensor. The licensor is able to earn new revenues with relatively low investment. Diff: 2 Page Ref: 348 Objective: 12.4: Identify the basic issues in international licensing and discuss the advantages and disadvantages of licensing. 136) Describe the specialized entry modes for international business. Answer: Companies can take advantage of international business opportunities without making long-term investments by using specialized entry modes like contract manufacturing, management contracts, and turnkey projects. Contract manufacturing involves outsourcing manufacturing to other companies. A management contract is an agreement whereby one firm provides managerial assistance, technical expertise, or specialized services to a second firm for some agreed-upon time in return for monetary compensation. A turnkey project is a contract under which a firm agrees to fully design, construct, and equip a facility and then turn the project over to the purchaser when it is ready for operation. Diff: 1 Page Ref: 353 Skill: AACSB: Globalization Objective: 12.6: Analyze contract manufacturing, management contracts, and turnkey operations as specialized entry modes for international business. 137) What specific issues must be addressed in a detailed legal contract for an international licensing agreement? Discuss the importance of each one. Answer: Contracts for licensing agreements must include the boundaries of the agreement. The licensor and licensee must determine which rights and privileges are and are not being conveyed in the agreement. This protects both parties. Compensation must also be set out in the agreement. The royalty amount (or method of determination) as well as a minimum royalty payment should be specified. The rights, privileges, and constraints should be addressed in the contract. This protects the image of both companies and ensures the appropriate quality level. Finally, the length of the agreement must be stated. Diff: 2 Page Ref: 350 Skill: AACSB: Globalization Objective: 12.4: Identify the basic issues in international licensing and discuss the advantages and disadvantages of licensing. 138) Compare and contrast the three forms of foreign direct investment. Answer: The three methods are building new facilities or making a greenfield investment, buying existing assets or making an acquisition, and participating in a joint venture. Building new facilities allows a firm to select the best possible site and construct the best facility. However, it does require time and patience. Acquisition provides quick control and the ability to continue to generate revenues. Joint ventures are created when two or more firms agree to work together and create a jointly owned separate firm to promote their mutual interests. Diff: 1 Page Ref: 357 Skill: AACSB: Globalization Objective: 12.7: Characterize the greenfield and acquisition forms of FDI. 33

139) What are the advantages and disadvantages of acquisition? Answer: When a firm acquires another company, the firm obtains control of the acquired firm's factories, employees, technology, brand names, and distribution networks, and can continue to generate a revenue stream while the new operations are being integrated into the existing ones. Acquisition is also attractive because it maintains industry capacity, and because it allows a firm to quickly establish a presence in a foreign market. However, when a firm makes an acquisition it needs large sums of money and also gains the liabilities of the acquired firm. Diff: 3 Page Ref: 357 Skill: AACSB: Globalization Objective: 12.7: Characterize the greenfield and acquisition forms of FDI.

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