Global Business Today, 11e (Hill)
Chapter 13 Entering Foreign Markets
1) A firm contemplating expansion should choose a foreign market based on an assessment of the
nation’s long-run profit potential.
2) When assessing the attractiveness of a country as a potential market, an international business
must understand how the benefits, costs, and risks of doing business in that country will balance
out.
3) The present purchasing power of consumers in a new market is not a factor used by a business to
assess the long-run economic benefits of doing business with that nation.
4) The probability of survival decreases if an international business enters a national market after
several other foreign firms have already done so.
5) In international business, an early entrant to a foreign market may be at a disadvantage relative
to a later entrant, if regulations change in a way that diminishes the value of an early entrant’s
investments.
6) A business that chooses to enter an international market on a large scale implies rapid entry.
7) Exporting, as a mode of entry into foreign markets, does not help a firm achieve experience
curve and location economies.
8) If transportation costs are high for bulky products, exporting as a mode of entry into foreign
markets may not be economical.
9) Licensing gives an international firm tight control over manufacturing, marketing, and strategy
that is required for realizing experience curve and location economies.
10) Cross-licensing agreements increase the probability that firms might lose their know-how and
technology to a partner firm.
11) Fast food restaurants are good examples of the franchise model.
12) The most typical joint venture is a 50/50 venture, in which there are two parties, each of which
holds a 50 percent ownership stake and contributes a team of managers to share operating control.
13) In a joint venture, a firm benefits from a local partner’s knowledge of the host country’s
competitive conditions, culture, language, political systems, and business systems.
14) Similar to a licensing agreement, a joint venture puts the control of a company’s technology at
risk.
15) When a firm’s competitive advantage is based on technological competence, a joint venture is
the preferred mode of entry into a foreign market because it reduces the risk of losing control over
that competence.
16) Establishing a wholly owned subsidiary provides a company with tight control over the
operations in another country.
17) With a wholly owned subsidiary, a firm shares the costs of setting up overseas operations with
partner firms.
18) If an international firm’s core competency is based on proprietary technology, entering a joint
venture might risk losing control of that technology to the joint-venture partner.
19) Licensing increases the risk of losing control over a firm’s proprietary technological
know-how.
20) An international firm that perceives its technological advantage to be transitory and susceptive
to rapid imitation might want to license its technology to foreign firms.
21) Service-based companies typically favor a combination of franchising and master subsidiaries
to control the franchises within a region.
22) Acquisitions commonly take a long time to execute and, for this reason, are not favored by
most firms.
23) When an international firm makes an acquisition in a foreign market, it acquires valuable
intangible as well as tangible assets.
24) According to David Ravenscraft and Mike Scherer’s study, many acquisitions destroy rather
than create value.
25) An advantage of establishing a greenfield venture in a foreign country is that it gives the firm a
much greater ability to build the kind of subsidiary company that it wants.
26) One reason why a relatively poor country may be an attractive target for inward investment is
the potential for
A) rapid economic growth.
B) political instability.
C) currency depreciation.
D) a high cost of living.
E) a less developed infrastructure.
27) A country that ________ presents a favorable benefit-cost-risk trade-off scenario for foreign
expansion.
A) has large private-sector debt
B) has a free market system
C) is experiencing a dramatic upsurge in inflation rates
D) is heavily populated
E) is less developed and politically unstable
28) The text points out two things that can affect the value an international business creates in a
foreign market: the sustainability of its product offering and the
A) population density in the foreign market.
B) political stability of the foreign market.
C) nature of indigenous competition.
D) per capita income in the foreign market.
E) type of political system in the foreign market.
29) Many gluten-free food options are found on the store shelves in the United States, but they are
scarcely available in international markets. Given the increasing awareness of a healthy lifestyle,
such products satisfy an unmet need. Therefore, a product such as gluten-free food in international
markets
A) is likely to have greater value.
B) will have to be priced relatively low.
C) will see a decrease in sales volume.
D) is not suited to these markets.
E) will fail to make a profit.
30) An international business can command higher prices for a particular product in a foreign
market when
A) the product is widely available in the foreign market.
B) sales volume is relatively low in the foreign market.
C) the product offers greater value to customers in the foreign market.
D) the product is more suitable to other foreign markets.
E) domestic competitors are selling alternatives at reduced prices.
31) Gen-Fast Shoes wants to expand internationally and is deciding if its line of tennis shoes can
be sold at a high price in Europe. One way for Gen-Fast Shoes to assess this is to determine
whether these types of shoes in the foreign market offer customers greater
A) cost.
B) exports.
C) value.
D) competition.
E) production.
32) Sun Energy is the first hydro-based energy plant in Australia, and it has captured a large
portion of the market. It has created a strong brand name that everyone associates with energy
efficiency and cost savings. In this market, Sun Energy is demonstrating
A) first-mover advantages.
B) the small-scale entry.
C) pioneering costs.
D) a greenfield venture.
E) purchasing power parity.
33) First-mover disadvantages refer to
A) disadvantages associated with entering a foreign market before other international businesses.
B) costs that a late entrant to a foreign market has to bear.
C) a direct restriction on the quantity of a good that can be imported into a country.
D) imperfections in the operation of the market mechanism.
E) disadvantages experienced by being a late entrant in a foreign market.
34) Supple SkinCare Inc. is spending significant money educating customers on the value of its
mineral-based skincare line as it moves into several new international markets. The money to
educate customers is a form of
A) first-mover advantages.
B) political costs.
C) licensing fees.
D) pioneering costs.
E) opportunity costs.
35) The liability associated with foreign expansion is greater for foreign firms that
A) choose to ride on an early entrant’s investments.
B) use countertrade agreements
C) enter a national market early.
D) ride down the experience curve behind their rivals.
E) avoid pioneering costs.
36) The probability of survival for an international business increases if it
A) enters a national market after several other foreign firms have already done so.
B) avoids the use of countertrade agreements.
C) enters a national market early.
D) enters a foreign market via turnkey projects.
E) avoids engaging in joint ventures.
37) In international business, an advantage of being a late entrant in a foreign market is the ability
to
A) create switching costs that tie customers into products or services.
B) capture demand by establishing a strong brand name.
C) build sales volume and ride down the experience curve before early entrants.
D) ride on an early entrant’s investments in learning and customer education.
E) create a cost advantage over first movers.
38) When WoodFire Stoves decided to be a first-mover in the Canadian market, it had to spend 25
percent of its budget on promotional videos and other educational tools that explained why a
WoodFire Stove product was a necessary and a cost-saving method of heat. The costs the company
incurred are known as
A) retail costs.
B) competitive costs.
C) greenfield costs.
D) pioneering costs.
E) moving costs.
39) According to Christopher Bartlett and Sumantra Ghoshal, how can local companies
differentiate themselves from foreign multinationals?
A) licensing their core technologies
B) entering into turnkey projects
C) standardizing their product offerings
D) focusing on market niches
E) raising trade barriers
40) Locally manufactured Bubbles is a popular brand of detergent in Germany. However, with the
entry of a foreign multinational into the market, Bubbles begins to lose market share. According to
Christopher Bartlett and Sumantra Ghoshal, how can the producer of Bubbles best differentiate
itself from foreign multinationals?
A) licensing their core technologies
B) entering into turnkey projects
C) standardizing their product offerings
D) focusing on market niches
E) raising trade barriers
41) One disadvantage of large-scale entry into a foreign market is the
A) decrease in a firm’s exposure to the foreign market.
B) difficulty attracting customers and distributors for the product.
C) inability to build rapid market-share irrespective of the scale of entry.
D) limited product acceptance due to the avoidance of potential losses.
E) availability of fewer resources to support expansion in other desirable markets.
42) When Yum Brands (which owns KFC, Taco Bell, and Pizza Hut) entered China, it had to
spend heavily to establish itself in that market. What would be a disadvantage of Yum Brands’
large-scale entry into China?
A) decrease in a firm’s exposure to the foreign market
B) difficulty attracting customers and distributors for the product
C) inability to build rapid market-share irrespective of the scale of entry
D) limited product acceptance due to the avoidance of potential losses
E) availability of fewer resources to support expansion in other desirable markets
43) Which type of entry allows a company to learn about the foreign market while limiting the
firm’s exposure to that market?
A) early entry
B) small-scale entry
C) large-scale entry
D) late entry
E) rapid entry
44) Porter’s PaleAle is considering small-scale entry into the European market. What would be a
disadvantage of small-scale entry for this firm?
A) possibility of escalating commitment leading to major financial losses
B) limited availability of resources for use in other markets
C) lack of flexibility associated with strategic commitments
D) increase in economic exposure due to minimal time spent in evaluating a foreign market
E) difficulty of building market share and capturing first-mover advantages
45) Small-scale entry into a foreign market makes it difficult to build market share because it
A) necessitates rapid entry into a foreign market.
B) is associated with a lack of commitment demonstrated by the foreign firm.
C) leads to escalating strategic commitments.
D) requires that extra time be spent in analyzing a foreign market.
E) leads to increased exposure to a foreign market.
46) A likely outcome of a foreign firm entering a developed nation on a small scale after other
international businesses in the industry is
A) capturing first-mover advantages.
B) higher pioneering costs.
C) rapid increase in market share.
D) limited future growth potential.
E) rapid increase in sales volume.