International Business: The Challenges of Globalization, 9e (Wild)
Chapter 13 Selecting and Managing Entry Modes
1) ________ is the most common form of international business activity.
A) Exporting
B) Licensing
C) Countertrade
D) Joint Venture
2) Which of the following steps of the strategy development process for exports involves
performing market research and interpreting results obtained from the research?
A) identification of a potential market
B) match needs of the market to the company’s abilities
C) initiation of meetings
D) commitment of resources
3) Which of the following steps of the strategy development process for exports involves
establishing relationships with potential local distributors?
A) identification of a potential market
B) match market needs to the company’s abilities
C) initiation of meetings
D) commitment of resources
4) What is the first step in selecting a foreign market?
A) identification of potential market
B) monitoring major markets
C) evaluating host country’s trade policies
D) assessing general legal and political environments
5) Which of the following is true of distributors?
A) The use of distributors increases the exporter’s control over the price buyers are charged.
B) They are compensated with a fixed salary plus commissions based on the value of their sales.
C) They are seldom required to take ownership of the merchandise when it enters their country.
D) They can stunt the growth of the exporter’s market share by charging very high prices.
6) ________ 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
7) Which of the following allows a country to earn back some of the currency it pays out for
imports?
A) switch trading
B) counterpurchase
C) buyback
D) barter
8) ________ refers to any one of several different arrangements that business parties negotiate so
that they can trade goods for good, primarily with countries that have limited amounts of foreign
exchange.
A) Factoring
B) Offset
C) Countertrade
D) Barter
9) The sale of goods and services to a country by a company that promises to buy a specific
product from that country in the future is called a(n) ________.
A) counterpurchase
B) offset
C) joint venture
D) barter
10) A company proposes that in exchange for a hard-currency sale, it will make a hard-currency
purchase of an unspecified product from the buyer nation in the future. Which of the following is
the company proposing?
A) a counterpurchase
B) an offset
C) a buyback
D) a barter
11) An offset agreement differs from a counterpurchase agreement in that an offset agreement
________.
A) fails to specify the type of product that must be purchased
B) fails to specify the amount that will be spent on the purchase
C) fails to give a business greater freedom in fulfilling its end of a countertrade deal
D) fails to make a hard-currency purchase of any product from that nation in the future
12) ________ is a countertrade whereby one company sells to another its obligation to make a
purchase in a given country.
A) Franchising
B) Joint venture
C) Switch trading
D) Barter
13) Buyback is defined as ________.
A) the export of industrial equipment in return for products produced by that equipment
B) an agreement that a company will offset a hard-currency sale to a nation by making a hard-
currency purchase of an unspecified product from that nation in the future
C) the sale of goods or services to a country by a company that promises to make a future
purchase of a specific product from that country
D) the exchange of goods or services for a certain amount of money
14) The export of industrial equipment in return for products produced by that equipment is
called ________.
A) barter
B) franchising
C) offset
D) buyback
15) Which of the following statements is true of countertrade?
A) Countertrade is practiced by countries when there is a lack of hard currency.
B) Countertrade involves products whose prices on world markets tend to remain steady.
C) Countertrade usually involves industrial products and computer softwares.
D) Hedging risk in countertrade is prohibited.
16) Which of the following is a strategic factor that influences a company’s international entry
mode selection?
A) market consumption capacity
B) market receptivity
C) market size
D) market intensity
17) Which of the following is an advantage of exporting?
A) vulnerability to tariffs
B) logistical complexities
C) potential conflicts with distributors
D) access to new markets
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Scenario: Owen’s HomeCare Products
Owen McCain, owner of Owen’s HomeCare Products, is considering going international. He
feels that the products he manufactures will be well-received, especially in developing countries.
He wants to understand the exporting process and then scale his exporting activities accordingly.
18) Through his research, Owen learns that the first step in developing a successful export
strategy is ________.
A) initiation of meetings with intermediaries
B) identification of a potential market
C) commitment of resources
D) matching of market needs to company abilities
19) Which of the following steps would Owen implement toward the end while developing a
successful export strategy?
A) initiation of meetings with intermediaries
B) identification of a potential market
C) commitment of resources
D) matching of market needs to company abilities
20) If Owen’s HomeCare Products decides to sell their products to intermediaries who then resell
them to buyers in target markets, the company would be engaging in ________ and use the
services of an Export Management Company (EMC).
A) indirect exporting
B) counterpurchase
C) an acquisition
D) a joint venture
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Scenario: Wang’s Techno Toys
Ann Wang has been successfully running Wang’s Techno Toys that sells high-tech toys in the
domestic market. Continually increasing and stiff competition at home has now forced Wang’s
Techno Toys to enter international markets through direct exports.
21) Which of the following will most likely help Techno Toys sell its toys directly to buyers in
the target market?
A) agents
B) sales representatives
C) export management companies
D) export trading companies
22) Which of the following occurs when a company sells its products to buyers in a target market
without going through intermediary companies?
A) direct export
B) indirect export
C) contract manufacturing
D) licensing
23) ________ take ownership of the merchandise when it enters their country and accept all the
risks associated with generating local sales.
A) Agents
B) Distributors
C) Sales representatives
D) Freight forwarders
24) A(n) ________ exports products on behalf of an indirect exporter.
A) local distributor
B) subsidiary
C) sales representative
D) export management company
25) The most common method used for buying and selling goods internationally is exporting.
26) Most large companies use exporting to increase sales and open up new markets when the
domestic market has become saturated.
27) Companies can achieve economies of scale in production by expanding into international
markets.
28) Direct exporting is when a company sells its products directly to buyers in a target market.
Indirect exporting occurs when a company sells its products to intermediaries who then resell to
buyers in a target market.
29) Typically, indirect exporting relies on local sales representatives or distributors.
30) Distributors are firms who take ownership of the merchandise when it enters their country.
31) Agency relationships are popular among exporters because they are easy to terminate should
difficulties arise.
32) Countertrade provides a way for firms to trade either by using a small amount of hard
currency or even none at all.
33) Countertrade is not an option for smaller companies because of the cash outlays involved.
34) Buyback is the export of industrial equipment in return for products produced by that
equipment.
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35) A confirmed letter of credit is guaranteed by both the exporter’s bank in the country of export
and the importer’s bank in the country of import.
36) Letters of credit are popular among traders because it reduces the risk of non-shipment.
37) Commonly licensed intangible property includes patents, copyrights, special formulas and
designs, trademarks, and brand names.
38) Explain why companies consider exporting. Describe the four-step model of developing a
successful export strategy.
39) Why would an exporter use a sales representative or a distributor? Why would the exporter
be reluctant to offer an open account payment method?
40) What is countertrade? Explain the concept of buyback as a type of countertrade, and discuss
buyback as a joint venture configuration.
41) Companies involved in direct exporting typically rely on ________.
A) distributors
B) agents
C) export management companies
D) All of the above
42) Which of the following is a method of export/import financing?
A) offset
B) buyback
C) switch trading
D) documentary collection
43) Which of the following normally takes the form of a wire transfer of money from the bank
account of the importer directly to that of the exporter prior to shipment of merchandise?
A) documentary collection
B) letter of credit
C) advance payment
D) open account
44) Advance payment is commonly used for export/import financing when ________.
A) two parties are unfamiliar with each other
B) the buyer has obtained credit for the transaction
C) the transaction is for a relatively high amount
D) the buyer has good credit rating at banks
45) Export/import financing in which a bank acts as an intermediary without accepting financial
risk is called ________.
A) documentary collection
B) counterpurchase
C) buyback
D) open account
46) Which of the following financing methods entails the greatest risk for importers?
A) documentary collection
B) advance payment
C) confirmed letter of credit
D) open account
47) Which of the following financing methods entails the lowest risk for exporters?
A) supersedeas bond
B) advance payment
C) letter of credit
D) open account
48) What is the primary risk an exporter faces with documentary collection?
A) bank changing terms
B) importer defaulting
C) issuing bank defaulting
D) importer failing to pay account balance
49) A document ordering the importer to pay the exporter a specified sum of money at a
specified time is called a ________.
A) bill of lading
B) letter of credit
C) bill of exchange
D) management contract
50) Which of the following requires an importer to pay for the imported goods when they are
delivered?
A) sight draft
B) onboard bill of lading
C) air way bill of lading
D) time draft
51) A ________ extends credit to the importer by requiring payment at some specified time after
the importer receives the goods.
A) sight draft
B) time draft
C) bill of lading
D) bill of exchange
52) What document serves as a title to the goods in question under the document collection
payment method?
A) sight draft
B) bill of lading
C) bill of exchange
D) trade acceptance
53) Which of the following is a method of export/import financing in which the importer’s bank
issues a document stating that the bank will pay the exporter when the exporter fulfills the terms
of the document?
A) sight draft
B) bill of lading
C) letter of credit
D) bill of exchange
54) Martin Exporting requests ABC Bank to add its own guarantee of payment to a letter of
credit, which creates a(n) ________.
A) advised letter of credit
B) confirmed letter of credit
C) irrevocable letter of credit
D) unconfirmed letter of credit
55) Which of the following letters of credit can be modified without obtaining approval from
either the exporter or the importer, by the bank issuing the letter of credit?
A) revocable letter of credit
B) confirmed letter of credit
C) at sight letter of credit
D) irrevocable letter of credit
56) A(n) ________ is guaranteed by both the exporter’s bank in the country of export and the
importer’s bank in the country of import.
A) confirmed letter of credit
B) transferrable letter of credit
C) revocable letter of credit
D) irrevocable letter of credit
57) Letters of credit are popular among traders because the risk of non shipment are assumed by
________.
A) distributors
B) importers
C) exporters
D) banks
58) Export/import financing in which an exporter ships merchandise and later bills the importer
for its value is called ________.
A) advance payment
B) open account
C) a letter of credit
D) documentary collection
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Scenario: Wang’s Techno Toys
Ann Wang has been successfully running Wang’s Techno Toys that sells high-tech toys in the
domestic market. Continually increasing and stiff competition at home has now forced Wang’s
Techno Toys to enter international markets through direct exports.
59) In some countries, people exchange electronic goods for Techno Toys instead of paying
money for them. This practice is known as ________.
A) offset
B) counterpurchase
C) switch trading
D) barter
60) Which of the following methods of export/import financing is Techno Toys’ bank using if it
acts as an intermediary without accepting financial risk?
A) documentary collection
B) buyback
C) letter of credit
D) advance payment