Chapter 11: Starting International Business
TRUE/FALSE
1. Only smaller, younger firms are considered entrepreneurial.
2. Start-ups companies are normally run by a single entrepreneur.
3. Foreign distributors receive a commission on sales, while sales agents trade on their own account.
4. A major challenge of selling through sales agents is the provision of after sales service.
5. Services cannot be exported.
6. Developing customized software and sending it across the internet is a form of service export.
7. A hotel welcoming visitors from other countries is engaged in a form of international business that is
reflected in transactions on the balance of payment.
8. Health care is a rare example of an economic activity that cannot be internationalized.
9. Franchising is a low risk business activity because it can quickly be reorganized if a more promising
local partner offers to become a franchisee.
10. Build-own-operate contracts are a common form of internationalization in the banking industry.
11. Internationalization is one of the strategies to grow international entrepreneurial firms.
12. Major international construction projects, such as airports or bridges, often include “consortia” signing
“build-own-operate” contracts with the government of the host country.
13. Subcontracting combines an export transaction with an import transaction.
14. The “Uppsala model” is named after the Norwegian Professor who developed the model in the 1980s.
15. The Uppsala model suggests that internationalization is an iterative process between commitment
decisions and enhancement of resources and capabilities.
16. Stages models suggest that first must go through specific stages to be able to operate on the global
stage.
17. Born global is a colloquial term to describe firms that start international business at a very early stage
of their development.
18. International new venture and born global are different expressions for the same type of company.
19. According to several studies, the most important difference between born globals and firm
internationalizing more slowly is that born globals have entrepreneurial teams that had a lot of
international experience prior to setting up the new company.
20. One of the most valuable assets a firm can look for in a foreign setting is a local contact.
21. International transaction costs are typically higher than domestic transaction costs.
22. If a Greek importer does not pay an American exporter on time, it is safe to assume they are being
opportunistic because all international transactions must follow the same guidelines.
23. International entrepreneurial firms are born global firms.
24. International transaction costs are in part due to differences in formal and informal institutions.
25. Entrepreneurial firms can internationalize while staying in domestic markets through indirect exports.
26. One way of entrepreneurial firms entering foreign markets is through franchising/licensing.
27. Direct exports are the sale of products made through export intermediaries.
28. A letter of credit is used when the exporter needs greater assurance that the importer is going to pay for
the goods or services received.
29. Licensing is mostly used in the service industries.
30. The level of complexity and required resources increases from direct export, to licensing / franchising,
and finally to foreign direct investment.
31. A stage model is a model of internationalization that portrays the slow step-by-step process an SME
typically go through to internationalize its business.
32. The institutions of the host country are important for entrepreneurs engaging international transactions,
while home country institutions are normally not important.
33. The higher the cultural distance between two countries, the more communication problems are likely
to inhibit business transactions.
34. Export credit insurance schemes are a home country institutions that SME exporters can use to their
advantage.
35. The internet has eliminated the barriers to international business.
MULTIPLE CHOICE
1. Within the United States, small and medium-sized enterprises (SMEs) are defined as:
a. Firms with less than 20 employees
b. Firms with less than 200 employees
c. Firms with less than 500 employees
d. Firms with less than three departments
2. Which of the following is NOT a defining characteristic of entrepreneurship?
a. Discovery c. Opportunity
b. Age d. Exploration
3. ________ is an example of a non-equity internationalization strategy
a. A build-operate-transfer contract
b. A hiring of a consultant based abroad
c. An indirect export with foreign distributors or agents
d. All of these answers
4. Which of the following statements on foreign representatives is correct:
a. Distributors import products and then sell them on their own account
b. Sales agents import products and then sell them on their own account
c. Distributors are paid a commission on their sales
d. None of these answers
5. When buying a product on the internet from a company based outside the EU, you:
a. Normally have to pay value-added-tax on the product
b. Are violating EU trade rules
c. Are exempt from import tariffs
d. Are engaging in an export of services
6. What is not an example of a service export?
a. A consultancy report prepared for a foreign government agency
b. The shipment of containers between two other countries
c. Providing language training to students coming from other countries
d. Staying in a hotel in another country
7. Service exports are fast growing in which sector of the economy?
a. Education
b. Tourism
c. Hospitals
d. All of these answers
e. None of these answers
8. Tourism services providers may increase their exports by:
a. Training their staff in cross-cultural communications
b. Accepting foreign credit cards
c. Marking their services on the internet in multiple languages
d. All of these answers
e. None of these answers
9. Which of the following forms of contract is commonly used in the construction industry:
a. Build-own-operate
b. Turn-key project
c. Build-operate-transfer
d. All of these answers
e. None of these answers
10. Which of the following forms of international business is commonly used in the hotel industry:
a. Foreign direct investment
b. Management contract
c. Franchising contract
d. All of these answers
e. None of these answers
11. Which of the following forms of international business transfers intellectual property rights to a local
partner?
a. Turn-key projects c. Licensing
b. Indirect exports d. Management contract
12. Which of the following statements about the internationalization process model is not correct?
a. The model was developed originally by Swedish professors Jan-Erik Vahlne and Jan Johanson
b. The model explains internationalization as the outcome of an iterative process involving
commitment decisions and learning.
c. The model establishes a sequence of “stages” that firms have to go through to be successful in
international markets.
d. The model is popularly known as “Uppsala model” because it was developed at the University of
Uppsala.
13. The internationalization of a firm is often interdependent with the internationalization of its business
partners because:
a. The expertise in a firms’ network grows as international partners join the network
b. Business partners are an important source of information about foreign business locations
c. The expertise of existing network partners grows with their own internationalization
d. All of these answers
e. None of these answers
14. Businesses that from their inception seek to derive significant competitive advantage from the use of
resources and the sale of outputs in multiple countries are known as:
a. Small and medium sized enterprises c. Born globals
b. New international ventures d. International entrepreneurs
15. Entrepreneurs ambitiously aiming to grow their business internationally have been shown to accelerate
their internationalization by:
a. Hiring staff experienced in international business to operate foreign affiliates
b. Assembling an internationally experienced entrepreneurial team
c. Learning by doing business with foreign investors operating in their country
d. All of these answers
e. None of these answers
16. Imitating the behaviour of other firms when plotting a foreign entry strategy:
a. Is known as mimetic behavior
b. Can lead to bandwagon effects
c. Can reduce the uncertainty, and thus reduce the costs of foreign entry
d. All of these answers
e. None of these answers
17. Which is NOT one of the three broad modes for entering foreign markets?
a. Foreign direct investment c. Direct exports
b. Licensing/franchising d. Micro-financing
18. ________ is the sale of products made by firm in their home country to customers in other countries.
a. Direct exports c. Letter of credits
b. Indirect exports d. Licensing
19. ________ is a way to reach overseas customers by exporting through domestic-based export
intermediaries.
a. Direct exports c. Licensing
b. Indirect exports d. Letter of credits
20. Which of the following statements about home country institutions is correct?
a. In the European Union, incentive schemes to support exports by small firms are illegal.
b. In the European Union, some countries provide government-backed export insurance services.
c. In the European Union, exports to non-EU countries are subject to export tariffs.
d. In the European Union, expenses for bribing officials in countries outside the EU are
tax-deductible.
21. The “extend of similarity or dissimilarity between regulatory, normative and cognitive institutions of
two countries” is known as:
a. Cultural distance c. Cultural level effects
b. Institutional level effects d. Institutional distance
22. “Born global” is a term referring to:
a. The newest generation of entrepreneurs
b. Firms that focus on domestic issues first, then cautiously approach international opportunities
c. Establishing large firms with major international networks
d. Entrepreneurial firms that are rapidly internationalizing
23. Which of the following statement about entry modes is correct?
a. Companies often combine many different entry modes when designing a foreign entry.
b. Companies often sign licensing agreements with their own joint ventures to secure their
intellectual property rights.
c. Companies often use separate operations, established using different modes, to serve different
markets in the same country.
d. All of these statements are correct.
24. Which of the following is NOT a strategy for entrepreneurial SMEs to internationalize without leaving
their home country:
a. Outsource administrative work
b. Export indirectly
c. Harvest and exit through sell-offs
d. Become suppliers for foreign firms
25. Which of these statements about the internet is not correct?
a. Internet-based payment systems eliminate the counter-party risk of importing internationally.
b. Exporters can use the internet to increase demand for their products.
c. Social networking sites export services when they charge membership fees.
d. Software developers can export their software through online transactions.
26. SMEs can internationalize while staying in domestic markets through:
a. Becoming suppliers of foreign firms
b. Becoming alliance partners of foreign direct investors
c. Indirect exports
d. All of these answers
27. ________ perform an important “middleman” function by linking sellers and buyers overseas.
a. Indirect exporters c. Export intermediaries
b. Sporadic exporters d. Alliance partners
28. ________ is a financial contract that states that the importer’s bank will pay a specific sum of money to
the exporter upon delivery of the merchandise.
a. Letter of credit c. Export credit
b. Indirect export d. Alliance credit
29. The institution-based view suggests that firms selling products on the internet:
a. Are subject to the laws and taxation rules of their home country
b. Are subject to the laws and taxation rules of the countries where their customers are based
c. Are subject to the laws established by the multilateral internet monitoring organization (IMO)
d. Cannot be barred from reaching their customers in other countries as long as they comply with the
rules of the country where they are officially registered
30. What is not a means to accelerate internationalization of born globals
a. Learning from others operating in the same host countries
b. Divesting overseas assets to reduce the risk profile of the firm
c. Hiring people experienced in doing business abroad
d. Learning about international business by importing
31. Worldwide, 4186 hotels carry the name of one of the brands owned by Intercontinental. How many of
them are actually owned by Intercontinental?
a. Intercontinental owns more than 4186 hotels, yet some of them are run under local brand names
b. Less than 50 hotels
c. About half of the hotels
d. All 4186 hotels
32. The children’s book publisher Skandinavia A/S:
a. Is employing translators around the world to translate its book into many different languages
b. Has sales offices in 26 countries around the world
c. Owns printing facilities in China where the books are manufactured
d. All of these answers
e. None of these answers
33. When governments wish to build a major project such as a power station or a railway line, they often
create competition between different consortia through a worldwide:
a. Tender c. Management contracts
b. Franchising d. Sale
34. The model of internationalization that portrays the slow step-by step process an SME goes through to
internationalize its business is known as:
a. Stage model c. Direct export model
b. Franchising model d. Indirect model
35. If one company is manufacturing a specific stage in the production process of a company in another
country, this is known as:
a. International turnkey projects
b. International licensing
c. International build-own-operate contracts
d. International subcontracting
ESSAY
1. How can small businesses in the tourism sector enhance their international business?
[VARIATION: teachers may specify a specific type of business]
2. Discuss direct exporting, licensing, and franchising as strategies for entering a foreign market. Explain
each, and detail strengths and weaknesses.
3. Describe the challenges faced by construction firms wishing to participate in a major international
construction project.
4. Identify and explain the dilemma behind transaction costs and international entrepreneurial
opportunities.
5. How can companies accelerate their process of building a strong international market position?
6. Are born global firms proof that the internationalization process is not valid?
7. How does institutional environment and distance affect firms’ considerations when designing their first
steps abroad?
8. What is the vallue of the stage model? Can SMEs internationalize faster than what is suggested by the
stage model?