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Indicate whether the statement is true or false.
1. Subsidiaries require major marketing efforts to penetrate the international market because of cultural
differences and because the entrant is new and relatively unknown.
a.
True
b.
False
2. Trade barriers lead to decreased competition from abroad, and raise prices and profits of domestic firms.
Interestingly, such protection over time will often lead to higher-quality domestic products and services.
a.
True
b.
False
3. A major reason why growth-oriented MNEs establish operations abroad is to diversify and minimize risk so
that overall corporate cash flows and earnings will be relatively stable.
a.
True
b.
False
4. Strategic alliances are primarily aimed at enhancing goodwill.
a.
True
b.
False
5. A relatively simple approach to diversification is to identify overseas projects that have performance levels
that are highly correlated to domestic cash flows or project returns over time.
a.
True
b.
False
6. Microsoft (United States), Toyota (Japan), Lenovo, (China), and Petrobras (Brazil) are just a few of the
hundreds of large multinational enterprises that are based in one country but own and operate establishments in
others.
a.
True
b.
False
7. When it comes to franchising, the parent company’s objective is to make sure that when a customer visits its
franchisee in any country, the quality of products and services provided are similar in every store.
a.
True
b.
False
8. Interestingly, licensing and franchising typically leads to the penetration of international markets without
significant capital investment abroad by the parent company.
a.
True
b.
False
9. When MNEs go abroad, they generally do so for two major reasons. There could be massive competition in
the home market or firms may genuinely identify new business opportunities abroad based upon the company’s
competitive advantage in production, technology and management.
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a.
True
b.
False
10. Mexico consistently has been the world’s largest recipient of FDI capital in the world averaging some $200
billion a year in net FDI inflows since 2005. Mexico has been made more globally competitive as a
consequence of such FDI flows.
a.
True
b.
False
11. MNEs can never successfully enter foreign markets as traders, licensors, or franchisors.
a.
True
b.
False
12. When Coca-Cola acquired major assets of Parle Exports in India, it instantly received access to Parle’s huge
national bottling and distribution network. This is an example of international joint venture in global markets.
a.
True
b.
False
13. A fundamental consideration that must be made in business is the risk-return trade-off. In general, the
greater the risk (loss of capital invested) entrepreneurs are willing to take, the greater the rewards (profit) they
are likely to reap.
a.
True
b.
False
14. The only profitable way for foreign firms to enter trade-restricted markets is through FDI rather than through
exports.
a.
True
b.
False
15. The level of corruption in a country is usually a good indicator of the degree of good or poor governance in
that country.
a.
True
b.
False
Indicate the answer choice that best completes the statement or answers the question.
16. The Coca-Cola company has operations in more than 140 countries and generates more that 55 percent of its
profits from its overseas operations. Coca-Cola’s annual profits are, therefore, more stable than those of a firm
that focuses upon the U.S. market alone. Coca-Cola is engaging in _____.
a.
importing
b.
diversification
c.
a merger
d.
a joint venture
e.
an exchange rate movements
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17. A new facility built and operated overseas that requires large investments of capital is an example of a
_____.
a.
subsidiary
b.
multinational enterprise
c.
foreign acquisition
d.
strategic alliance
e.
divestiture
18. Which of the following is NOT true about franchising?
a.
It is the practice in which the parent firm is obligated to provide specialized equipment and/or
service, and sometimes to fund some startup costs, to franchisees in return for an annual fee.
b.
Franchisees receive technical assistance from the parent company, along with customer-service
training.
c.
In franchising, the parent firm assumes relatively less risk than with licensing.
d.
The parent company’s objective is to make sure that when a customer visits a franchise in any
country, the quality of products and services provided are similar.
e.
Franchising typically leads to the penetration of international markets without significant capital
investment abroad by a parent company.
19. _____ advantages refer to the mode of entry abroad.
a.
Ownership, or firm specific
b.
Locational, or country-specific
c.
Internalization
d.
Externalized
e.
Environmental
20. An agreement between two or more firms that do not involve the creation of a separate entity with joint
ownership and in which the firms stand to gain revenues and maximize profits through cooperation for a given
period of time is called a(n) _____.
a.
license
b.
franchise
c.
foreign acquisition
d.
strategic alliance
e.
export-import business
21. Of the following, which is NOT an emerging-market?
a.
South Africa
b.
India
c.
Australia
d.
Brazil
e.
Russia
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22. The combination of medical treatment in a foreign country with rest and recreation is called _____.
a.
medical tourism
b.
a health-cation
c.
a medi-vac
d.
medical transport
e.
hospi-tality
23. U.S. corporations have been pouring investments into China to build manufacturing facilities to produce
goods for the local and export markets. Since economists expect the Chinese yuan to appreciate against the
dollar in the future, the forthcoming Chinese yuan profits of U.S. MNEs when converted to U.S. dollars will be
high. This is an example of U.S. companies cutting costs by _____.
a.
minimizing factor input costs
b.
generating revenue
c.
acquiring other companies
d.
exploring joint ventures
e.
reacting to exchange rate movements
24. The purchase of established firms abroad with the goal of using the existing production, marketing, and
distribution networks and of having instant access to foreign markets that fit the purchasing firm’s global
strategy is known as a(n) _____.
a.
subsidiary
b.
multinational enterprise
c.
foreign acquisition
d.
strategic alliance
e.
divestiture
25. According to the text, which of the following entry strategies has the lowest degree of risk?
a.
Licensing
b.
Wholly-owned foreign subsidiary
c.
Foreign acquisition
d.
Joint venture
e.
Strategic alliance
26. Who identified three key economic “advantages” that firms should have for FDI to occur?
a.
Hawthorne
b.
Maslow
c.
Dunning
d.
Ford
e.
Roosevelt
27. Of the following, which is NOT true of mergers and acquisitions?
a.
By merging the strengths of the home company with those of the host country firm, the new firm will
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become more competitive internationally.
b.
The company being acquired should be well established and have a good reputation in the local
market.
c.
Mergers and acquisitions are relatively low-risk.
d.
Corporate cultural differences may inhibit smooth integration of the two organizations.
e.
An exit strategy should be in place that enables the home company to leave the host country.
28. Of the following, which is NOT true about the export-import business?
a.
Many employees, often 100+, are required for an export-import business to operate.
b.
The export-import business is a relatively low-risk operation.
c.
The export-import business involves penetrating foreign markets or importing merchandise at
competitive prices for domestic consumption.
d.
The opportunity to participate in export-import business is significant.
e.
Government agencies offer specialized seminars and programs on how to identify markets overseas
and sell merchandise there.
29. The second stage of the product life cycle is _____.
a.
decline
b.
introduction
c.
growth
d.
maturity
e.
development
30. In a free enterprise system, the overriding objective of firms wanting to invest abroad is to _____.
a.
acquire other companies
b.
make a brand name
c.
gain market share
d.
use joint production and sales distribution networks to increase revenue
e.
maximize shareholder wealth
31. Coca-Cola has built 43 bottling plants and two concentrate manufacturing plants with three separate partners
in China since 1979. This is an example of a(n) _____.
a.
license
b.
franchise
c.
foreign acquisition
d.
strategic alliance
e.
international joint venture
32. A business that is jointly owned and operated by two or more firms that pool their resources to penetrate
host country markets, generate and split profits, and share commercial risk is called a(n) _____.
a.
license
b.
franchise
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c.
foreign acquisition
d.
strategic alliance
e.
international joint venture
33. The practice in which the parent firm is obligated to provide its brand name, specialized equipment and/or
service, and sometimes to fund some startup costs, to another firm in return for an annual fee is known as
_____.
a.
licensing
b.
franchising
c.
a foreign acquisition
d.
a joint venture
e.
an export-import business
34. Typewriters are in the _____ stage of the product life cycle.
a.
decline
b.
introduction
c.
growth
d.
maturity
e.
development
35. A challenge faced by strategic alliances is that
a.
they are illegal in most international markets.
b.
they involve the creation of a separate entity with joint ownership.
c.
environmental sustainability is difficult to achieve.
d.
any member could prematurely quit the alliance.
e.
they are not especially focused on enhancing revenues.
36. The ultimate objective of most joint ventures is _____.
a.
acquiring other companies
b.
making a brand name
c.
developing sustainable environment
d.
using joint production and sales distribution networks to increase revenue
e.
helping others
37. A firm that has a patent for manufacturing a particular brand-name drug will have monopoly rights to use
that brand name abroad to produce goods profitably. This is an example of a(n) _____ advantage.
a.
ownership, or firm specific
b.
locational, or country-specific
c.
internalization
d.
externalized
e.
environmental
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38. Of the following, which is NOT a cost of foreign direct investment?
a.
Developing countries may be exploited by MNEs.
b.
Human rights firms may exploit the labor force in host countries.
c.
Local governments in host countries may lack corporate social responsibilities on the part of MNEs.
d.
Host countries have been concerned about political interference by MNEs in their country’s affairs
when things do not go the way the foreign company wants.
e.
It led to a lapse in job creation and economic flow in the United States.
39. Which of the following is NOT true about licensing?
a.
It involves slightly more risk to the licensee than licensor.
b.
The license fee could be based on a percentage of final sales revenue of the product, or the number of
units sold.
c.
When a product is licensed, the foreign partner will use the licensor’s patented technology as agreed
to manufacture and sell products that meet the licensor’s standards.
d.
Unscrupulous licensees have been known to manufacture licensed products and sell them under
different brand names.
e.
Licensing is the practice in which a company or individual provides the foreign partner with the
technology to manufacture and sell products or services in a target country for an annual fee
40. The so-called BRIC countries consist of: _____.
a.
Brazil, Russia, India, and China
b.
Belgium, Romania, Iran, and Canada
c.
Bulgaria, Russia, Iraq, and Cuba
d.
Brazil, Russia, Israel, and Chile
e.
Belarus, Romania, Indonesia, and Colombia
41. According to the text, which of the following entry strategies has the highest degree of risk?
a.
Licensing
b.
Wholly-owned foreign subsidiary
c.
Foreign acquisition
d.
Joint venture
e.
Strategic alliance
42. Brazil is one of the world’s lowest cost producers of ethanol and soybeans. Japanese corporations have
heavily invested in Brazil to lease large tracts of land to grow soybeans for export to Japan, where they are used
to derive products such as soy sauce and chicken feed. These Japanese companies are cutting costs by _____.
a.
minimizing factor input costs
b.
generating revenue
c.
acquiring other companies
d.
exploring joint ventures
e.
reacting to exchange rate movements
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43. The first stage of the product life cycle is _____.
a.
decline
b.
introduction
c.
growth
d.
maturity
e.
development
44. Which industry is especially well-known for franchising?
a.
agricultural industry
b.
mining industry
c.
airline industry
d.
automotive industry
e.
fast-food industry
45. General Electric, Microsoft, Sony, Toyota, and BMW are examples of _____.
a.
subsidiaries
b.
multinational enterprises
c.
foreign acquisitions
d.
strategic alliances
e.
acquisitions
Enter the appropriate word(s) to complete the statement.
46. An ______ is a business that is jointly owned and operated by two or more firms that pool their resources to
penetrate host country markets, generate and split profits, and share commercial risk.
47. Multinational ______ are firms that are headquartered in one country, but own and control manufacturing,
services, research and development facilities, or other business entities on foreign soil.
48. An agreement between two or more firms that do not involve the creation of a separate entity with joint
ownership and in which the firms stand to gain revenues and maximize profits through cooperation for a given
period of time refers to _______.
49. _______ describes how countries exercise authority and how efficiently they deliver basic infrastructure
services like water, sanitation, roads, electricity, security, and the like for public as well as private firms.
50. ______ refers to the potential financial loss that entrepreneurs are willing to take in a business.
51. In a free enterprise system, the main objective of firms that invest abroad is to maximize _____ wealth.
52. New facilities built and operated overseas that require large investment of capital to tailor to the exact needs
of the home country firm refers to _____.
53. McDonald's, Burger King, and Subway are all examples of businesses that operate as ______.
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54. A relatively low-risk business operation that involves penetrating foreign markets (by exporting) or
importing merchandise at competitive prices for domestic consumption refers to _______.
55. _______ refers to the practice in which a company or individual provides the foreign partner with the
technology to manufacture and sell products or services in a target country for an annual fee.
Scenario – Lewis Fabrication
Lewis Fabrication was founded in 2001 and is based in Maryland, USA. This company manufactures custom
designed motorcycle parts and currently has over two thousand U.S. customers. Due to the growing number of
inquiries received from foreign countries such as Japan, Canada, China, and Indonesia, Lewis Fabrication has
decided to begin operations on a global scale. The owners realize there is much to learn before undertaking this
monumental step. However, financial projections indicate about $1 million in profit is very likely in the first
year of going global. The owners are very excited and looking forward to the business expansion.
56. In its quest for global expansion Lewis Fabrication must examine its rationales for wanting to expand into
the foreign marketplace. Which one of the following is not a reason why this company would want to expand
globally?
a.
To maximize shareholder wealth
b.
To minimize risk of failure for the business
c.
To increase the revenues of the company
d.
To cut costs of production for the company
e.
To reduce risks associated with business cycle fluctuations
Scenario – Boseman Clothier, Inc.
Boseman Clothier, Inc. has been in operation for over 75 years. It is based in South Carolina, USA and is a
well-recognized name in the industry. It produces custom fitted men’s suits that are in high demand throughout
the world. The average cost of one of its suits is in excess of five thousand U.S. dollars. Boseman proudly
states it has more customer orders than its one store can fill within the next six months. With growing demand
from overseas, the company has recently decided to open operations in four foreign markets next year.
Boseman realizes the potential of this move will generate increased revenues for the company. One of the
options it is contemplating is exploring forming an international joint venture. Boseman is also entertaining the
thought of opening operations differently in each of the four new foreign markets. The company feels the use
of different strategies may increase its odds of generating profits in each different market.
57. Boseman Clothier, Inc. has indicated it would like to use different entry strategies for each of the four
markets it plans to enter. Which of the following would not be considered a benefit from using licensing in the
other foreign markets it plans to enter?
a.
This type of relationship is expected to last for years so there must be a high
level of trust between the companies involved
b.
Boseman will be subjected to the least amount of risk with this type of entry into
a foreign market
c.
Boseman is expected to provide the foreign partner with the process necessary to
produce its highly desired suits
d.
Boseman’s partner is expected to pay an annual license fee to the company for
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the use of its production process and the ability to sell its products
e.
Boseman does not have to have financial resources to open new production
facilities within the foreign country
Scenario – Lewis Fabrication
Lewis Fabrication was founded in 2001 and is based in Maryland, USA. This company manufactures custom
designed motorcycle parts and currently has over two thousand U.S. customers. Due to the growing number of
inquiries received from foreign countries such as Japan, Canada, China, and Indonesia, Lewis Fabrication has
decided to begin operations on a global scale. The owners realize there is much to learn before undertaking this
monumental step. However, financial projections indicate about $1 million in profit is very likely in the first
year of going global. The owners are very excited and looking forward to the business expansion.
58. The global markets in which Lewis Fabrication plans to expand provides this company with the opportunity
for entering relatively high-growth markets with a product that is in demand. Which one of the following
would Lewis Fabrication be least likely to expect to find in this type of market?
a.
No government or military influence or intervention for Lewis Fabrication
b.
Per capita incomes are rising and expected to continue to rise
c.
The middle class is growing in numbers and so is their demand for products
d.
A larger percent of the population is financially classed as below middle class in
certain of these foreign markets
e.
These foreign markets are considered to have high profitability potential for
companies such as Lewis Fabrication
Scenario – Boseman Clothier, Inc.
Boseman Clothier, Inc. has been in operation for over 75 years. It is based in South Carolina, USA and is a
well-recognized name in the industry. It produces custom fitted men’s suits that are in high demand throughout
the world. The average cost of one of its suits is in excess of five thousand U.S. dollars. Boseman proudly
states it has more customer orders than its one store can fill within the next six months. With growing demand
from overseas, the company has recently decided to open operations in four foreign markets next year.
Boseman realizes the potential of this move will generate increased revenues for the company. One of the
options it is contemplating is exploring forming an international joint venture. Boseman is also entertaining the
thought of opening operations differently in each of the four new foreign markets. The company feels the use
of different strategies may increase its odds of generating profits in each different market.
59. Boseman Clothier, Inc. has decided to begin international operations using an international joint
venture. Which one of the following is not one of the expectations from this type of entry into the foreign
market arena?
a.
The joint venture partners will have shared company equity
b.
The profits earned will be shared with the joint venture partner
c.
The increased risk from operating abroad will be shared with the joint venture
partner
d.
Use of joint production and distribution will help to increase market share
e.
Boseman will maintain all decision making rights in the foreign market
Scenario – Lewis Fabrication
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Lewis Fabrication was founded in 2001 and is based in Maryland, USA. This company manufactures custom
designed motorcycle parts and currently has over two thousand U.S. customers. Due to the growing number of
inquiries received from foreign countries such as Japan, Canada, China, and Indonesia, Lewis Fabrication has
decided to begin operations on a global scale. The owners realize there is much to learn before undertaking this
monumental step. However, financial projections indicate about $1 million in profit is very likely in the first
year of going global. The owners are very excited and looking forward to the business expansion.
60. While Lewis Fabrication has decided to begin operations on a global scale, it realizes there is still much to
learn. One of the fundamental things it must have knowledge on is the manner in which it can begin operations
globally. Which one of the following would not be considered a choice for starting international business
operations for this company?
a.
Begin as an export-import business
b.
License a foreign business partner to produce and sell the company’s products
c.
Open wholly owned subsidiaries of the company in the Midwest
d.
Sell franchises of the business to foreign buyers
e.
Form a strategic alliance with a foreign firm
Scenario – Boseman Clothier, Inc.
Boseman Clothier, Inc. has been in operation for over 75 years. It is based in South Carolina, USA and is a
well-recognized name in the industry. It produces custom fitted men’s suits that are in high demand throughout
the world. The average cost of one of its suits is in excess of five thousand U.S. dollars. Boseman proudly
states it has more customer orders than its one store can fill within the next six months. With growing demand
from overseas, the company has recently decided to open operations in four foreign markets next year.
Boseman realizes the potential of this move will generate increased revenues for the company. One of the
options it is contemplating is exploring forming an international joint venture. Boseman is also entertaining the
thought of opening operations differently in each of the four new foreign markets. The company feels the use
of different strategies may increase its odds of generating profits in each different market.
61. Boseman is also considering making the entry into the international market by engaging in foreign direct
investments in the nations. Which one of the following is not a true statement regarding foreign direct
investment from the host country’s perspective?
a.
Significant financial inflows always result from engaging in foreign direct
investment.
b.
Foreign direct investment can create new jobs and can generate tax revenues for
governments
c.
A concern of the local governments in host countries is the lack of corporate
social responsibility
d.
There is the potential for exploitation of human labor within certain countries
e.
These investments may take the form of plants, buildings, or inventories
62. What are the benefits and costs of foreign direct investment from the host country’s perspective? Explain.
63. Differentiate between strategic alliances and international joint ventures.
64. Companies go global for three possible motives. Describe each of these three motives and the possible
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strategies available to companies under each motive.
65. Briefly describe Dunning’s Eclectic Theory of Foreign Direct Investment.
66. ABC Manufacturing is exploring entering the global arena. Describe the three lowest risk entry strategies in
global business for ABC.
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Answer Key
1. True
2. False
3. True
4. False
5. False
6. True
7. True
8. True
9. True
10. False
11. False
12. False
13. True
14. True
15. True
16. b
17. a
18. c
19. c
20. d
21. c
22. a
23. e
24. c
25. a
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26. c
27. c
28. a
29. c
30. e
31. e
32. e
33. b
34. a
35. d
36. d
37. a
38. e
39. a
40. a
41. b
42. a
43. b
44. e
45. b
46. international joint venture
47. enterprises
48. strategic alliances
49. Governance
50. Risk profile
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51. shareholder
52. subsidiaries
53. franchises
54. export-import business
55. Licensing
56. b
57. b
58. a
59. e
60. c
61. a
62. Student answers will vary.
63. Student answers will vary.
64. Student answers will vary.
65. Student answers will vary.
66. Student answers will vary.
