Chapter 12: Foreign Entry Strategies
TRUE/FALSE
1. Pearl River Piano established a sales subsidiary in Germany to enhance sales of its made-in-China
pianos.
2. In marketing its pianos in Europe and North America, Pearl River Piano is building on the exclusivity
of its Chinese brand name.
3. A licensing is a form of equity-based entry mode.
4. Equity-based entry modes include co-marketing, research and development, contracts, turnkey
products, strategic suppliers, strategic distributors, and licensing/franchising.
5. A joint venture (JV) is a form of equity-based entry mode.
6. Foreign subsidiaries are operations of an MNE owned and operated abroad.
7. An entry strategy specifies the objectives of operations in a foreign country, and how the company
intends to achieve them.
8. Formal government policies regarding entry mode requirements for new firms are generally becoming
more restrictive.
9. The terms “entry strategy” and “entry mode choice” are different terms for the same activity.
10. One of the disadvantages of a joint venture is the potential of partner opportunism.
11. It is important for managers in joint ventures to have collaborative relationship skills since
collaboration is more important than formal equity control for the success of joint ventures.
12. Innovation seeking FDI is concerned with the exploitation of a firm’s existing innovation capabilities.
13. Efficiency seeking FDI is concerned with the reduction of firm’s overall costs of production.
14. Industry agglomerations are an example of location-specific advantages.
15. Market seeking investors pay in particular attention to the size and growth potential of demand in their
industry.
16. Alliances are better than acquisitions in situations that require a high degree of integration.
17. Economies of scale are an important aspect of innovation seeking investment projects.
18. Innovation seeking entries are likely to choose locations in industrial agglomerations and near
technology-oriented universities.
19. Foreign investors in China normally seek the lowest cost location for their manufacturing operations.
20. Chinese investors in Europe are mostly driven by efficiency seeking motives.
21. Joint ventures tend to provide less direct control over joint activities on a continual basis than a
contractual relationship.
22. High tariff barriers usually prevent market seeking investment in local production facilities.
23. First-mover advantages will always dominate over late-mover advantages.
24. First movers in new markets often create brand loyalty, which creates a barrier to entry for later
entrants.
25. Late mover advantages include learning from experience of the first mover, and resolution of
technological and market uncertainty.
26. Many first movers did not succeed in creating sustained market leadership.
27. Wholly-owned greenfield operations are less risky because they face no risks associated with the
relationship with co-owners, and no risks arising from the restructuring of an acquired operation.
28. Joint ventures are always the least risky option.
29. Partial acquisition are often risky because the investor has to get involved with managing another firm
without having full equity control to push through changes deemed necessary.
30. Joint ventures require less capital outlays than establishing the same operation as a wholly owned
subsidiary.
31. Brownfield acquisitions are less risky because they involve less resource transfer and restructuring
than conventional acquisitions.
32. Many emerging economies impose legal restrictions on foreign investors that induce them to invest by
joint venture rather than wholly-owned operations.
33. Foreign investors should always enter with the maximum affordable scale of operation to send a clear
competitive signal to their local competitors.
34. In cases of multiple acquisitions in the same host country, each acquisition has to be evaluated strictly
on its merits as a self-sufficient operation.
MULTIPLE CHOICE
1. The case study of Pearl River Piano illustrates which of the following strategies of establishing
operations abroad:
a.
Recruitment of foreign specialists to upgrade technology
b.
Acquisition of a brand name to strengthen global market positions.
c.
Establishment of a greenfield sales office to strengthen a local market position.
d.
All of these answers
e.
None of these answers
2. German piano maker Grotrian Steinweg is addressing the challenge of global competition by:
a.
Enhancing its name recognition by acquiring a famous Asian piano brand
b.
Defensive focus on established European markets only
c.
Focus on the premium segment
d.
Reduction of production costs by relocating production to China
3. Which of the following is not a building block of an entry strategy?
a.
Marketing
b.
Distance from market of local subsidiary
c.
Timing of entry
d.
Raising external capital
4. Which of the following is NOT part of an entry strategy:
a.
The set of criteria that determine the choice of country to invest in
b.
A plan that specifies the objectives of an entry and how to achieve them
c.
The set of criteria that determine the choice of entry mode
d.
A plan that specifies the objectives of an exit and how to achieve them
5. Which is not a common objective of foreign entries?
a.
Capital seeking
c.
Market seeking
b.
Natural resource seeking
d.
Efficiency seeking
6. Foreign investors entering a high tech industry agglomeration such as Silicon Valley are likely to be:
a.
Innovation seeking
c.
Geography seeking
b.
Natural resource seeking
d.
Efficiency seeking
7. Market seeking investors are not particularly attracted to:
a.
Countries with high export tariffs
b.
Countries with large and emerging domestic markets
c.
Countries with high GDP growth
d.
Countries with untapped local demand
8. Efficiency seeking investors are interested in which of the following locational advantages?
a.
Good traffic and logistics infrastructure
b.
Universities and science centres
c.
Low labour costs
d.
Large economies of scale
9. Efficiency seeking investors may choose to locate in or near Rotterdam because there they find:
a.
Unique natural resources for agriculture
b.
Excellent port infrastructure
c.
Local demand for their produce
d.
Leading edge universities
10. Industry agglomerations are attractive for foreign investors because they offer:
a.
Specialized suppliers
b.
A workforce trained in skills relevant to the industry
c.
Possibilities for exchanging knowledge with experts in the industry
d.
All of the above locational advantages
e.
None of the above locational dis-advantages
11. Which statement on import tariffs and foreign entry holds true?
a.
If tariffs are low, foreign investors are less likely to enter a market.
b.
If tariffs are high, foreign investors are less likely to use local production operations to
serve the market.
c.
If tariffs are high, foreign investors are more likely to use local production operations to
serve the market.
d.
If tariffs are high, foreign investors are less likely to enter a market.
12. When Ford established a production facility to build cars in Vietnam, which consideration was
important?
a.
It could achieve economies of scale at a low cost location.
b.
It could gain full control over the local operation.
c.
It could develop a new Vietnamese brand to supply its US customers.
d.
It could overcome barriers to trade in cars.
13. What is NOT an advantage of being a first mover?
a.
Building a local brand name and market share
b.
Resolution of market uncertainty before the entry
c.
Building relationships and connections with key stakeholders such as local governments
d.
Pre-emption of competitors to access scarce local resources
14. What is NOT an advantage of being a late mover?
a.
Analyzing market performance of the first mover to adjust market position
b.
Proprietary, technological leadership in the market
c.
Resolution of technological uncertainty
d.
Opportunity to free ride in the first-mover investment in building the market
15. Which of the following modes is not an equity mode?
a.
Partial acquisition
c.
Joint venture
b.
Franchising
d.
Wholly owned subsidiary
16. Wholly owned subsidiaries can be established by:
a.
Partial acquisition or joint venture entry
b.
Acquisition or partial acquisition entry
c.
Joint venture or greenfield entry
d.
Acquisition or greenfield entry
17. Which entry mode provides foreign investors most opportunity to design a new operation that
optimally fits the organizational structure of the parent?
a.
Greenfield (wholly owned)
c.
Full acquisition
b.
Newly established joint venture
d.
Partial acquisition
18. Which entry mode provides foreign investors most opportunity to take over the operations of an
existing company, while keeping the former owners involved and incentivized to support the success
of the business?
a.
Greenfield (wholly owned)
c.
Newly established joint venture
b.
Partial acquisition
d.
Full acquisition
19. Which of the following is NOT a characteristic for full acquisition entries?
a.
They allow the investor to design the operation from scratch
b.
They provide the owner with access to local knowledge of a firm
c.
They allow the investor unconstrained ownership control of the operation
d.
They do not add new capacity to an industry
20. Which entry mode is sometimes referred to as ‘corporate child’?
a.
Greenfield (wholly owned)
c.
Full acquisition
b.
Partial acquisition
d.
Joint venture
21. A few years after the initial entry a ________ may be turned into a ________.
a.
Partial acquisition…..staged acquisition
b.
Greenfield…..brownfield
c.
Joint venture…..partial acquisition
d.
Multiple acquisition…..partial acquisition
22. If marketing assets such as brand loyalty and brand recognition are important in an industry, then
foreign investors are likely to pursue:
a.
First-mover advantages
c.
Human resource advantages
b.
Late-mover advantages
d.
Logistics advantages
23. When foreign investors enter a local context that they are not familiar with, they may use which
strategy to access local knowledge?
a.
Joint venture with a local partner
b.
Partial acquisition of a local firm
c.
Location in an agglomeration of foreign investors
d.
All of these answers
24. When foreign investors face a local context where financial markets are underdeveloped, financial
intermediaries are weak, and local accounting practice is not very transparent, they are likely to avoid
which strategy?
a.
Greenfield strategy
c.
Late mover strategy
b.
Multiple acquisition strategy
d.
All of these choices
25. Arm’s length contracts with local suppliers should be avoided if:
a.
Financial intermediaries are weak
b.
Import tariffs are high
c.
Transaction costs related to contract enforcement are high
d.
The foreign investor wants to acquire local knowledge
26. India until recently does not permit full foreign ownership of department stores. How can foreign
investors address such an institutional constraint?
a.
They could form joint ventures with local partners
b.
They may enter the wholesale market only
c.
They could focus their resources elsewhere and forget about India
d.
All of these answers
e.
None of these answers
27. When entering a country where network relationships between businesses are known to be important,
foreign investors may choose to build such networks by:
a.
Forming a joint venture with a local partner
b.
Locate in an agglomeration of foreign investment firms
c.
Both of these answers
d.
None of these answers
28. What are disadvantages of a small scale entry?
a.
The strategic flexibility is low
c.
The competitive risk is high
b.
The capital commitment is high
d.
The investment risk is high
29. Which entry modes are typically associated with both high capital investment and complex
post-acquisition integration challenges?
a.
Brownfield acquisitions
c.
Both of these answers
b.
Multiple acquisitions
d.
None of these answers
30. Which statement best describes a staged acquisition?
a.
A joint venture with changing equity stakes over time
b.
A partial acquisition in which the foreign investor acquires further equity stakes
c.
A subsidiary in which the local management in several stages acquires equity stakes
d.
A full acquisition that is partially divested in the maturation stage
31. If an MNE in a fast moving consumer goods industry wishes to build a strong market share quickly in
a previously highly fragmented market, it is likely to consider which entry mode?
a.
Multiple acquisition strategy
c.
Joint venture strategy
b.
Late mover strategy
d.
Location in agglomeration strategy
32. Which entry mode allows foreign investors to buy sought after local assets controlled by local firms,
but develop a local operation upgraded to the technological and managerial standards of the parent
firm?
a.
Staged acquisition
c.
Brownfield acquisition
b.
Partial acquisition
d.
Multiple acquisitions
33. Entry strategies have to identify the most appropriate way to combine:
a.
The resources of the MNE with the resources of local firms
b.
The resources of the host country with the resources of local firms
c.
The resources of the host country with the institutions of the host country
d.
The resources of the MNE with the resources of its regional operations
34. Which decision is not part of the design of a foreign entry strategy?
a.
Divestment
c.
Marketing
b.
Logistics
d.
Timing
ESSAY
1. What are the key aspects that companies have to decide when designing and entry strategy?
[VARIATION: refer to a specific industry discussed in class]
2. Explain why foreign investors with different motives may be attracted to different types of locations.
Give specific examples to illustrate your arguments.
[VARIATION: refer to a specific country discussed in class]
3. How do trade barriers such as tariffs affect companies’ choice of foreign entry strategy? Give specific
examples to illustrate your arguments.
4. Using an example, discuss whether it is always better to enter a new market early to stay ahead of your
competitors?
5. Why do many foreign investors seeking to sell their products in emerging economies choose joint
venture as an entry mode?
6. What are the advantages of full ownership of a foreign investment operation?
7. How can foreign investors wishing to acquire a local firm in an emerging economy adjust their
acquisition strategy to the institutional and resource constraints in that country?
8. How do institutions in a host country affect foreign investors’ choice of location?