112. The problems associated with exporting include
a. merging corporate cultures.
b. a partner’s incompatibility.
c. difficulty in negotiating relationships.
d. high transportation costs and the expense of tariffs.
113. Which of the following is NOT a disadvantage associated with exporting?
a. potential loss of proprietary technologies
b. high transportation costs
c. loss of control over distribution activities
d. tariffs imposed by local governments
114. A licensing agreement
a. results in two firms agreeing to share the risks and the resources of a new venture.
b. is best way to protect proprietary technology from future competitors.
c. allows a foreign firm to purchase the rights to manufacture and sell a firm’s products within a host country.
d. can be greatly impacted by currency exchange rate fluctuations.
115. Which of the following is NOT a typical disadvantage of licensing?
a. little control over the marketing of the products
b. licensees may develop a competitive product after the license expires
c. lower potential returns than the use of exporting or strategic alliances
d. incompatibility of the licensing partners
116. All of the following are reasons why firms use international strategic alliances EXCEPT
a. sharing of risks and resources.
b. alliances facilitate the development of new capabilities.
c. learning new competencies particularly those related to technology.
d. strategic alliances are easy to manage.
117. One of the primary reasons for failure of cross-border strategic alliances is
a. the incompatibility of the partners.
b. conflict between legal and business systems.
c. security concerns and terrorism.
d. high debt financing.
118. If conflict in a strategic alliance or joint venture is not manageable, a(n) may be a better option.
a. licensing strategy
b. exporting strategy
c. acquisition
d. new wholly owned subsidiary
119. Which of the following is NOT a disadvantage of international acquisitions?
a. They are very expensive and often require debt financing.
b. The acquiring firm has to deal with the regulatory requirements of a host country.
c. Merging the acquired and acquiring firm is difficult.
d. It is the slowest way to enter a new market.
120. The means of entry into international markets that offers the greatest control is
a. licensing.
b. acquisitions.
c. joint ventures.
d. greenfield ventures.
121. Which of the following is an advantage associated with greenfield ventures?
a. governmental support and subsidies in the host country
b. the lower cost of this type of venture
c. the level of control over the firm’s operations
d. the lower level of risks involved
122. If intellectual property rights in an emerging economy are not well-protected, the number of firms in the industry is
rapidly growing, and the need for global integration is high, is the preferred entry mode.
a. exporting
b. strategic alliance
c. a joint venture or wholly owned subsidiary
d. licensing
123. The decision of what entry mode to use is primarily based on all of the following factors EXCEPT
a. the industry‘s competitive conditions.
b. the country‘s situation and government policies.
c. the worldwide economic situation.
d. the firm’s unique set of resources, capabilities, and core competencies.
124. When a firm INITIALLY becomes internationally diversified, its returns
a. remain stable.
b. decrease.
c. become more variable.
d. increase.
125. An international diversification strategy is one in which a firm
a. expands into nearby markets.
b. expands into a potentially large number of geographic locations and markets.
c. expands into one or a few markets.
d. acquires a firm in a foreign country.
126. A nation’s competitiveness depends on the capacity of its industries to
advantage.
a. diversify internationally
b. have access to critical resources
c. protect its proprietary capabilities
d. innovate
and thereby maintain its competitive
127. Internationally diversified firms
a. earn greater returns on their innovations through larger or more numerous markets.
b. are more likely to produce below-average returns for investors in the long run.
c. may need to decrease international activities when domestic profits are poor.
d. are generally unable to achieve high levels of synergy because of differences in cultures.
128. Bunyan Heavy Equipment, a U.S. firm, is investigating expanding into Russia using a greenfield venture. The
committee researching this project has delivered a negative report. The MAIN concern of the committee is
probably
a. loss of intellectual property due to Russian piracy.
b. the fluctuation in the value of the ruble.
c. the numerous and conflicting legal authorities in Russia.
d. Russia’s recent actions to gain state control of private firms’ assets.
129. Terrorism creates an economic risk for firms, which
a. reduces the amount of investment foreign companies will make in a country perceived to be terror-prone.
b. is created by governmental bans on doing business with terrorist regimes.
c. is offset by the above-average returns for firms that have learned how to operate in such an environment.
d. is absorbed by firms that are highly geographically diversified and that operate in both secure and insecure
locations.
130. Arkadelphia Polymers, Inc., earns 60 percent of its revenue from exports to Europe and Asia. The CEO of the
company would be
a. concerned if the value of the dollar strengthened.
b. pleased if the value of the dollar strengthened.
c. unconcerned about the fluctuation in the value of the dollar because the company is widely diversified
geographically.
d. likely to consider moving to international strategic alliances or acquisitions if the value of the dollar fell and
remained low.
131. The positive results associated with increasing international diversification have been shown to
a. continue as the level of international diversification increases.
b. level off and become negative as diversification increases past some point.
c. become negative quickly.
d. be centered in only one or two industries.
132. All of the following complicate the implementation of an international diversification strategy EXCEPT
a. widespread multilingualism.
b. increased costs of coordination between business units.
c. cultural diversity.
d. logistical costs.
Essay
133. What are the incentives for firms to use international strategies? What are the three basic benefits firms can derive
by moving into international markets?
134. What are the three basic benefits of international strategies?
135. Discuss the three international corporate-level strategies. On what factors are these strategies based?
136. Identify and describe the modes of entering international markets. What are their advantages and disadvantages?
137. Discuss the effect of international diversification on a firm’s returns.
138. Identify and describe the major risks of international diversification.
Subjective Short Answer
Case Scenario 1: Blast Furnace, Inc., (BFI)
Blast Furnace, Inc., (BFI) provides customized development of automated rich-media applications, and scalable
solutions that allow media and entertainment companies, as well as enterprises and government organizations, to
deploy, manage, and distribute video content on IP-based networks. The company was founded in 1997 and went
public in 2004; its stock trades on the NASDAQ under the ticker BLST. While providing solutions to a variety of
firms and industries in North America, BFI has experienced its fastest growth with the security products that it
designs and sells to the U.S. government and U.S. government agencies. This growth is based on its propriety VUE
software, which is a complete identification solution for capturing, analyzing, and managing multi-biometric
information. Proprietary analysis algorithms aggregate and cross-compare multiple biometrics to increase accuracy
and lessen dependence on single identification techniques. Additionally, specialized encoding techniques reduce file
size and increase analysis and response times. VUE supports a wide range of applications ranging from ID
issuance and verification to gated entry screening for border patrol, airports, government buildings, and
corporations. Essentially, VUE is able to sift through massive amounts of digitized multimedia files to create a
unified ID dossier of an individual and then identify those individuals rapidly anywhere in the data. Such a capability
is of great interest to security organizations, particularly since the World Trade Center bombing, because it allows
the user to identify suspects within minutes on a real-time basis anywhere digitized media is being created (like that
created by the hidden and visible surveillance cameras in airline terminals, banks, ATMs, and other public
locations). Once a suspect is entered into the system, the software is capable of scanning all data sources
automatically and without stop. For two years, BFI has had this market to itself but now two new entrants, a
Belgian start-up and the subsidiary of a Finnish telecom firm, are staking out positions in large non-U.S. markets
like Europe and Asia. BFI‘s management fears that if it limits its efforts to North America, then these aggressive
competitors may eventually develop strongholds in other markets from which they can launch successful attacks on
BFI’s home turf.
139. (Refer to Case Scenario 1). Should BFI expand its operations outside of North America?
140. (Refer to Case Scenario 1). Assume that BFI has chosen international expansion. How quickly should it move?
Which activities would you recommend BFI to internationalize first?
141. (Refer to Case Scenario 1). How would you evaluate which country or countries BFI should enter first?
142. (Refer to Case Scenario 1). If BFI engages in international diversification, it can expect that its returns decrease
initially but then increase quickly as it learns how to manage under conditions of greater geographic diversity.
Case Scenario 2: Heartsong LLC.
Heartsong LLC is a designer and manufacturer of replacement heart valves based in Peoria, Illinois. While a
relatively small company in the medical devices field, it has established a worldwide reputation as the provider of
choice of high-quality, leading-edge artificial heart valves. Most of its products are sold to large regional hospital
systems and research hospitals around the world, though primarily to customers in the United States and Europe.
Specialty heart centers are another emerging, but fast-growing market for its valves. Heartsong has recently
embarked on an expansion strategy that requires it to increase its volume, which in turn will demand more
component parts than it can source domestically— both from an economic and volume standpoint. The firm has
determined that such growth is only viable if it produces these parts itself overseas for a lower cost, or outsources
the production entirely to a joint venture it establishes with a local manufacturer, which could both produce the parts
more cheaply and in higher volumes. It is considering starting up an owned production facility in Luxembourg, or
seeking a joint venture with a precision manufacturer in China.
143. (Refer to Case Scenario 2). What opportunities and threats might Heartsong be exposing itself to via the
Luxembourg expansion proposal?
144. (Refer to Case Scenario 2). What opportunities and threats might Heartsong be exposing itself to via the China
expansion proposal?
145. (Refer to Case Scenario 2). Which option would you recommend?
146. (Refer to Case Scenario 2). The advantages of a joint venture with a precision manufacturer in China is shared
costs, shared resources, and shared risks, but there may be problems integrating the two corporate cultures.
Case Scenario 3: Compliance, Inc.
Compliance, Inc., (CI) conducts clinical human and animal trials for the pharmaceutical and biotechnology industries.
Revenues are split evenly between early and late drug development services. In the area of early drug development,
CI offerings include analytical, bioanalytical, antibody, clinical pharmacology (Phases I-IIa), toxicology, and drug
metabolism services. Late development services include central diagnostics, central lab, clinical development (Phases
IIb–IIIa), periapproval (Phases IIIb–IV), and pharmacogenomics. The bulk of its business is conducted in Europe
and the United States (10 and 17 subsidiaries, respectively); CI also has subsidiaries in Africa, Latin America, Asia,
and Australia. While now an independent public company, CI was once itself a subsidiary of Corning International.
Corning built up CI through over 40 acquisitions, hoping to extend its strength in medical testing glassware into the
medical services business. At the time Corning made its acquisitions, the clinical testing industry was geographically
fragmented, owing largely to the fact that various parts of the world had their own strong local pharmaceutical
companies and distinct regulatory environments. Perhaps for that reason Corning, and now CI, has retained the
autonomous character of each country‘s businesses. However, globalization of the regulatory environment (both
global and local standards), globalization of the biotechnology firms (increasing the geographic scope of their
operations), and tremendous consolidation in the pharmaceutical industry fireducing the number of pharmaceutical
industry participants to only a handful of major global companies) is causing CI to question its decentralized
strategy.
147. (Refer to Case Scenario 3). What benefits might CI expect from using an international strategy?
A. increased market size
B. economies of scale and learning
C. competitive advantage through location
D. increased market size, economies of scale and learning, and competitive advantage through
location.
148. (Refer to Case Scenario 3). What type of international strategy is CI currently pursuing?
A. multidomestic
B. global
C. transnational
D. regional
149. (Based on Case Scenario 3). What type of international strategy should CI pursue?
A. multidomestic
B. global
C. transnational
D. regional