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Chapter 9: Foreign Market Entry and International Production
MULTIPLE CHOICE
1. A company seeks to sell it products in a foreign country. That country prohibits any
controlling interests in locally-based enterprises. What is the company’s best course of
action?
a. A greenfield start.
b. A joint venture.
c. Direct exporting.
d. Merger.
2. For a new-to-exporting firm, with limited resources and valuable technology, which
would be the best means for market entry?
a. Indirect exporting through a trading company.
b. Licensing arrangement with a firm in the foreign country.
c. Acquisition of a foreign country firm.
d. None of the above.
3. What conditions in a foreign country might make it difficult for a home country firm to
make a greenfield investment there?
a. Restrictive host government regulations.
b. High construction costs.
c. Local opposition to the project.
d. All of the above.
4. Which of the following is an example of resource-seeking foreign direct investment?
a. Obtaining a particular mineral resource.
b. The need for specialized, trained labor.
c. Low wages.
d. All of the above.
5. Which of the following is not an example of market-seeking, foreign direct investment?
a. The need to tailor a product to particular local needs.
b. The need to serve as a supplier to another foreign firm establishing production in that
country.
c. The desire to gain access to large, local market.
d. The need to reduce production costs.
6. Which of the following is an example of efficiency-seeking foreign direct investment?
a. The need to follow a customer firm engaging in foreign direct investment abroad.
b. The desire for low-priced labor.
c. The desire to benefit from firm-level economies.
d. None of the above.
7. Which of the following is an example of strategic asset-seeking foreign direct
investment?
a. The desire to benefit from firm-level economies.
b. To preempt a competitor from the local market.
c. To consolidate company structure.
d. None of the above.
TRUE/FALSE
1. In the licensing mode of foreign market entry, a home country firm hires an agent to sell
its products abroad.
2. In the acquisition mode of foreign market entry, the home country firm need not buy a
controlling share in the host country firm for it to count as foreign direct investment
(FDI).
3. The joint venture mode of foreign market entry is an option for the home country firm
4. In the franchising mode of foreign market entry, the home country firm might allow the
foreign licensee to use its logo.
5. A five percent share in a foreign enterprise is too small to be considered as foreign direct
investment.
6. Home country firms concerned about possible theft of intellectual property should seek
licensing arrangements to sell their products in foreign countries.
7. Home country firms with little export experience should consider using a trading
company to handle their sales in a foreign country.
8. Home country firms facing exceptionally high tariffs in a foreign market should at least
consider investment strategies rather than exporting for foreign market entry.
SHORT ANSWER
1. What conditions in a foreign country would lead a home country firm to consider market
entry by means of investment rather than by exporting?
2. Under what conditions would a joint venture be a more logical foreign market entry
strategy than acquisition of a foreign firm?
3. Why might a host country firm choose the direct or indirect trade (exporting) means of
foreign market entry rather than investment or licensing?
4. What is the difference between the licensing and franchising modes of foreign market
entry?
5. What are the potential negative aspects of a licensing arrangement in a foreign country
for a home country firm?
6. Home country firms facing exceptionally high grade barriers in a foreign market should
consider what market entry options?
7. What types of resource conditions motivate firms to invest abroad?
8. What are some market-seeking motivations for international production?
9. What are some efficiency-seeking motivations for international production?
10. How did Fordism differ from the industrial capitalism of the 19th century?
11. How did Toyotism differ from the Fordist approach to manufacturing?
