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1. The choice of which markets to enter should be driven by an assessment of

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Chapter 15 Entry Strategy and Strategic Alliances True / False Questions 1. The choice of which markets to enter should be driven by an assessment of relative long-run growth and profit potential. True
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Chapter 15 Entry Strategy and Strategic Alliances True / False Questions 1. The choice of which markets to enter should be driven by an assessment of relative long-run growth and profit potential. True False 2. The attractiveness of a country as a potential market for an international business depends on balancing the benefits, costs, and risks associated with doing business in that country. True False 3. The costs and risks associated with doing business in a foreign country are typically high in an economically advanced and politically stable democratic nation. True False 4. The value an international business creates in a foreign market depends on the suitability of its product offering to that market and the nature of indigenous competition. True False 5. First-mover advantages are the advantages associated with entering a market early. True False 6. Costs that an early entrant has to bear that a later entrant can avoid are known as first-mover costs. True False 7. Educating customers is a part of pioneering costs. True False 8. A strategic commitment can be reversed by the top management according to their convenience. True False 9. Large strategic commitments increase strategic flexibility. True False 10. A small-scale entrant is more likely than a large-scale entrant to capture firstmover advantages associated with demand preemption, scale economies, and switching costs. True False 11. Small-scale entry allows a firm to learn about a foreign market while limiting the firm's exposure to that market. True False 12. Exporting is advantageous because it avoids the cost of establishing manufacturing operations in the host country and because it may help a firm achieve experience curve and location economies. True False 13. Exporting is most appropriate when lower-cost locations for manufacturing the product can be found abroad. True False 14. In a turnkey project, the contractor agrees to handle every detail of the project for a foreign client. True False 15. An advantage of turnkey projects is that the firm that enters into a turnkey deal will have no long-term interest in the foreign country. True False 16. Tangible property includes patents, designs, copyrights, and trademarks. True False 17. Licensing limits the firm's ability to realize experience curve and location economies by producing its product in a centralized location. True False 18. By its very nature, licensing increases a firm's ability to utilize a coordinated strategy. True False 19. McDonald's is an example of a firm that uses a franchising strategy. True False 20. Franchising enables a firm to quickly build a global presence. True False 21. The most typical joint venture is a 25/75 venture. True False 22. An advantage of joint ventures with a local partner is the knowledge of the local environment that the local partner contributes to the venture. True False 23. A wholly owned subsidiary limits a firm's control over operations in different countries. True False 24. Firms entering a market via a wholly owned subsidiary must bear all the costs and risks associated with the venture. True False 25. Brand names are generally well-protected by international laws pertaining to trademarks. True False 26. A joint venture is often politically more acceptable than a wholly owned subsidiary and brings a degree of local knowledge to the subsidiary. True False 27. Firms pursuing global standardization or transnational strategies tend to prefer joint-venture arrangements over wholly owned subsidiaries. True False 28. Acquisitions are quick to execute. True False 29. Acquisitions rarely produce disappointing results. True False 30. Overpayment for assets of an acquired firm is one reason acquisitions fail. True False 31. The main advantage of greenfield investment is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants. True False 32. Greenfield ventures are less risky than acquisitions in the sense that there is less potential for unpleasant surprises. True False 33. If a firm is trying to enter a market where there are already well-established companies, and where global competitors are also interested in establishing a presence, the firm should choose a greenfield investment. True False 34. Unlike joint ventures, strategic alliances require the firm to bear all the costs and risks of foreign expansion. True False 35. An alliance is a way to bring together complementary skills and assets that neither company could easily develop on its own. True False 36. A good ally will expropriate the firm's technological know-how while giving away little in return. True False 37. Contractual safeguards cannot be written into an alliance agreement to guard against the risk of opportunism by a partner. True False 38. Cross-licensing agreements can be used to formalize arrangements to swap skills and technology in a strategic alliance. True False 39. Relational capital refers to the building of interpersonal relationships between the firms' managers in a strategic alliance. True False 40. To maximize the learning benefits of an alliance, a firm must try to learn from its partner and then apply the knowledge within its own organization. True False Multiple Choice Questions 41. Other things being equal, the benefit-cost-risk trade-off is likely to be most favorable in: A. politically unstable developing nations that operate with a mixed or command economy. B. nations where there is a dramatic upsurge in either inflation rates or privatesector debt. C. politically stable developed and developing nations that have free market systems. D. developing nations where speculative financial bubbles have led to excess borrowing. 42. Early entrants to a market that are able to create switching costs that tie the customer to the product are capitalizing on. A. first-mover advantages B. pioneering costs C. economies of scale D. late-mover advantages 43. Which of the following is a first-mover advantage? A. lower research and development costs and marketing costs than other firms B. ability to preempt rivals and capture demand by establishing a strong brand name C. ability to capitalize on the work done by other firms D. creation of innovative products at lower costs than other firms 44. Switching costs: A. drive early entrants out of the market. B. make it easy for later entrants to win business. C. make it difficult for later entrants to win business. D. give later entrants a cost advantage over early entrants. 45. The costs of promoting and establishing a product offering when a firm enters a foreign market prior to its rivals are known as. A. switching costs B. market development costs C. pioneering costs D. promotional development costs 46. A large-scale entrant is more likely than a small-scale entrant to be able to capture first-mover advantages associated with. A. scale economies B. diseconomies of scale C. pioneering costs D. diseconomies of scope 47. Which of the following statements about small-scale entry is true? A. The commitment associated with a small-scale entry makes it possible for the small-scale entrant to capture first-mover advantages. B. Small-scale entry is a way to gather information about a foreign market before deciding whether to enter on a significant scale. C. By giving a firm time to collect information, small-scale entry increases the risks associated with a subsequent large-scale entry. D. Small-scale entry limits a firm's ability to learn about a foreign market thereby also limiting the firm's exposure to that market. 48. If a firm can realize location economies by moving production elsewhere, it should avoid: A. exporting. B. turnkey contracts. C. licensing. D. wholly owned subsidiaries. 49. Which of the following is a distinct advantage of exporting? A. It avoids the threat of tariff barriers by the host-country government. B. Firms benefit from a local partner's knowledge of the host country's competitive conditions. C. It avoids the often substantial costs of establishing manufacturing operations in the host country. D. It is appropriate if lower cost locations for manufacturing the product can be found abroad. 50. When an exporting firm finds that its local agent is also carrying competitors' products, the firm may switch to a to handle local marketing, sales, and service. A. wholly owned subsidiary B. franchising arrangement C. turnkey operation D. licensing agreement 51. In, the contractor agrees to handle every detail of the project for a foreign client, including the training of operating personnel. A. exporting B. licensing C. franchising D. turnkey projects 52. Turnkey projects are most common in which of the following industries? A. fresh fruit, grain, and meat products B. chemical, pharmaceutical, and metal refining C. consumer durables, computer peripherals, and automotive parts D. apparel, shoes, and leather products 53. Which of the following statements is true of turnkey projects? A. Turnkey projects are most common in industries which use simple, inexpensive production technologies. B. A turnkey strategy can be more risky than conventional FDI. C. A turnkey strategy is particularly useful where FDI is limited by hostgovernment regulations. D. Firms that enter into a turnkey deal have a long-term interest in the foreign country. 54. Many American firms that sold oil-refining technology to firms in the Gulf now find themselves competing with these firms in the world oil market. This is an example of: A. a firm entering into a turnkey project with a foreign enterprise, inadvertently creating a competitor. B. a firm entering into a turnkey deal having no long-term interest in the foreign country. C. a country subsequently proving to be a major market for the output of the process that has been exported. D. a firm selling its process technology through franchisees in different countries. 55. An arrangement whereby a firm grants the right of intangible property to another entity for a specified time period in exchange for royalties is a(n) agreement. A. turnkey B. licensing C. greenfield D. acquisition 56. Patents, inventions, formulas, processes, designs, copyrights, and trademarks are all forms of. A. licensing agreements B. franchising agreements C. intangible property D. tangible property 57. What is the primary advantage of licensing? A. It helps a firm avoid the development costs associated with opening a foreign market. B. It gives a firm the tight control over manufacturing, marketing, and strategy. C. It helps a firm achieve experience curve and location economies. D. It increases a firm's ability to utilize a coordinated strategy. 58. Which of the following is a disadvantage of licensing? A. It does not help firms that lack capital to develop operations overseas. B. It does not give a firm the tight control over strategy that is required for realizing experience curve and location economies. C. It cannot be used when a firm possesses some intangible property that might have business applications. D. The firm has to bear the development costs and risks associated with opening a foreign market. 59. Under a(n) agreement, a firm might license some valuable intangible property to a foreign partner, but in addition to a royalty payment, the firm might also request that the foreign partner license some of its valuable know-how to the firm. A. integrated licensing B. chartering C. franchising D. cross-licensing 60. Cross-licensing agreements are increasingly common in the industries. A. transportation B. high-technology C. construction D. consumer durables 61. is pursued primarily by manufacturing firms and is employed primarily by service firms. A. Licensing; franchising B. Franchising; licensing C. Franchising; exporting D. Exporting; licensing 62. If a service firm wants to build a global presence quickly and at a relatively low cost and risk, it must employ. A. chartering B. exporting C. a turnkey strategy D. franchising 63. Which of the following statements about franchising is true? A. It guarantees consistent product quality. B. It tends to involve more short-term commitments than licensing. C. It is a specialized form of licensing. D. It is employed primarily by manufacturing firms. 64. Which of the following is an advantage of franchising? A. A firm takes profits out of one country to support competitive attacks in another. B. A firm is relieved of many of the costs and risks of opening a foreign market on its own. C. It guarantees consistent product quality and achieves experience curve and location economies. D. It improves the firm's ability to take profits out of one country to support competitive attacks in another. 65. Firms engaging in a with a local company can benefit from a local partner's knowledge of the host country's competitive conditions, culture, language, political systems, and business systems. A. turnkey project B. joint venture C. greenfield investment D. licensing arrangement 66. The most typical joint venture is a venture. A. 50/50 B. 60/40 C. 75/25 D. 10/90 67. Which of the following is an advantage of establishing a joint venture? A. Joint ventures with local partners do not face any risk of being subject to nationalization or other forms of adverse government interference. B. Joint ventures give a firm a tight control over subsidiaries that it might need to realize experience curve or location economies. C. When the development costs and/or risks of opening a foreign market are high, a firm might gain by sharing these costs and or risks with a local partner. D. The firm is deprived of the knowledge of the host country's competitive conditions, culture, language, etc. 68. In a, the firm owns 100 percent of the stock. A. joint venture B. wholly owned subsidiary C. turnkey project D. franchising agreement 69. Which of the following is true of wholly owned subsidiaries? A. It is the least expensive method of serving a foreign market from a capital investment standpoint. B. It the most feasible entry mode due to the political considerations. C. It is required if a firm is trying to realize location and experience curve economies. D. It is particularly useful where FDI is limited by host-government regulations. 70. A wholly owned subsidiary is appropriate when: A. the firm wants to share the cost and risk of developing a foreign market. B. the firm wants 100 percent of the profits generated in a foreign market. C. the firm wants a plant that is ready to operate. D. the firm wants to test a market. 71. If a firm's core competency is based on control over proprietary technological know-how, and arrangements should be avoided if possible to minimize the risk of losing control over that technology. A. licensing; joint-venture B. wholly owned subsidiary; exporting C. turnkey contracts; exporting D. exporting; joint-venture 72. If a high-tech firm sets up operations in a foreign country to profit from a core competency in technological know-how, which of the following entry strategy is best? A. joint ventures B. licensing C. wholly owned subsidiaries D. turnkey contacts 73. The valuable asset of firms, whose competitive advantage is based on management know-how, is their. A. top management staff B. USP C. advertisements D. brand name 74. Most service firms have found that with local partners work best for controlling subsidiaries. A. joint ventures B. licensing agreements C. greenfield investments D. turnkey projects 75. A firm can establish a wholly owned subsidiary in a country by building a subsidiary from the ground up, called the. A. joint venture B. turnkey strategy C. licensing agreement D. greenfield strategy 76. Which of the following is true of acquisitions? A. It is a time-consuming process and takes a lot of time to execute. B. They are less risky than greenfield ventures in the sense that there is less potential for unpleasant surprises. C. They give the firm a much greater ability to build the kind of subsidiary company that it wants. D. In many cases, firms make acquisitions to preempt their competitors. 77. According to the, top managers typically overestimate their ability to create value from an acquisition. A. misvaluation theory B. performance extrapolation hypothesis C. market timing theory D. hubris hypothesis 78. To increase the potential for a successful acquisition, a firm should: A. always bid low to allow for partial failure. B. try to acquire a firm with a very different corporate culture so there is no forced overlap. C. screen the foreign enterprise to be acquired. D. seek companies only from similar national cultures. 79. Firms entering markets where there are no incumbent competitors to be acquired should choose: A. greenfield investments. B. joint ventures. C. acquisitions. D. takeovers. 80. refer to cooperative agreements between potential or actual competitors. A. Greenfield investments B. Strategic alliances C. Takeovers D. Licensing agreements 81. Which of the following statements is true of strategic alliances? A. The fixed costs and associated risks of developing new products or processes are borne by the alliance partner. B. They are a way to bring together complementary skills and assets that both companies develop. C. They limit the entry of firms into foreign markets. D. Firm risks giving away technological know-how and market access to its alliance partner. 82. Managing an alliance successfully requires building interpersonal relationships between the firms' managers. This is sometimes referred to as. A. relational capital B. relational assets C. operational assets D. venture capital Essay Questions 83. What are first-mover advantages? Discuss the advantages associated with them. 84. Explain the relationship between first-mover disadvantages and pioneering costs. 85. Discuss the trade-offs associated with large-scale entry versus small-scale entry. 86. Discuss Bartlett and Ghoshal's perspective on how firms from developing countries should approach international expansion. 87. Why should a firm choose exporting as a means of foreign market expansion? Discuss the advantages and disadvantages of exporting. 88. Explain the idea of a turnkey project. Why should a firm use this arrangement to expand internationally? In what industries are turnkey arrangements most common? 89. Define licensing agreements. What are the advantages of this mode of international expansion? 90. Why should a firm be cautious about entering a licensing agreement? 91. What is intangible property? How can intangible property be protected in a licensing agreement? 92. Compare and contrast licensing agreements and franchising agreements. 93. Briefly explain the advantages and disadvantages of franchising agreements. 94. What is a joint venture? What type of joint venture is most common? Provide an example of a joint venture. 95. Discuss the advantages of using a joint venture to enter foreign markets. 96. Imagine that you are meeting with your superiors to discuss entering a foreign market. Your boss has asked you to analyze a joint venture prospect. Why might you tell your boss that the joint venture is not a good idea? 97. How can a firm protect its proprietary information in a joint venture arrangement? 98. What are the two methods of entering foreign marketing using a wholly owned subsidiary? 99. Consider why a firm should enter a market via a wholly owned subsidiary. What are the advantages and disadvantages of this type of strategy? 100. Draw a distinction between firms based on their core competency Why do acquisitions fail? 102. Discuss strategic alliances. How successful are they? Why do firms form strategic alliances? 103. Discuss the three primary characteristics of a good ally How can a firm increase the probability of selecting a good partner? Chapter 15 Entry Strategy and Strategic Alliances Answer Key True / False Questions 1. The choice of which markets to enter should be driven by an assessment of relative long-run growth and profit potentia
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