International Business: The Challenges of Globalization, 7e (Wild)
Chapter 13 Selecting and Managing Entry Modes
1) The most common method used for buying and selling goods internationally is licensing.
2) Most large companies use exporting as a means of expanding total sales when the domestic
market has become saturated.
3) Companies can achieve economies of scale by expanding into international markets.
4) Matching market needs to the company’s abilities is the first step in developing a successful
export strategy.
5) Direct exporters always sell directly to end users.
6) Typically, indirect exporting relies on local sales representatives or distributors.
7) Using a distributor increases an exporter’s risk.
8) Agency relationships are popular among exporters because they are easy to terminate should
difficulties arise.
9) Countertrade provides a way for firms to trade either by using a small amount of hard
currency or even none at all.
10) Countertrade is not an option for smaller companies because of the cash outlays involved.
11) Switch trading is the export of industrial equipment in return for products produced by that
equipment.
12) Advance payment is the least favorable method of payment collection for exporters.
13) Advance payment made by an importer to an exporter normally takes the form of a sight
draft.
14) A sight draft extends the period of time following delivery by which the importer must pay
for goods.
15) A confirmed letter of credit is guaranteed by both the exporter’s bank in the country of export
and the importer’s bank in the country of import.
16) Letters of credit are popular among traders because banks assume most of the risks.
17) The open account method of export/import financing is used when the two parties are
unfamiliar with each other.
18) Cross licensing occurs when companies use licensing agreements to swap intangible property
with one another.
19) The brand name or trademark of a company is normally the single most important item
desired by a franchisee.
20) Franchising is primarily used in the manufacturing industries.
21) The primary advantage of franchising is that franchisees have a great degree of
organizational flexibility.
22) Under a turnkey project, one company supplies another with managerial expertise for a
specific period of time.
23) In a backward integration joint venture, the parties choose to invest together in downstream
business activities.
24) The most important disadvantage of a strategic alliance is that it can create a future local or
even global competitor.
25) Low tariffs and high quota limits encourage market entry by means of investment.
26) Products for which there are fewer substitutes can more easily absorb higher shipping and
production costs.
27) Which of the following is the most common method of buying and selling goods
internationally?
A) exporting and importing
B) countertrade
C) a turnkey project
D) A merger or an acquisition
28) Which of the following steps of the strategy development process for exports involves
performing market research and interpreting results obtained from the research?
A) identification of a potential market
B) match needs of the market to the company’s abilities
C) initiation of meetings
D) commitment of resources
29) Which of the following steps of the strategy development process for exports involves
establishing relationships with potential local distributors?
A) identification of a potential market
B) match market needs to the company’s abilities
C) initiation of meetings
D) commitment of resources
30) Which of the following is the first step in developing a successful export strategy?
A) identification of a potential market
B) match market needs to the company’s abilities
C) initiation of meetings
D) commitment of resources
31) Which of the following occurs when a company sells its products to buyers in a target market
without going through intermediary companies?
A) export through local distributors
B) export through agents
C) sale through export management companies
D) sale through export trading companies
32) ________ take ownership of the merchandise when it enters their country and accept all the
risks associated with generating local sales.
A) Agents
B) Distributors
C) Sales representatives
D) Freight forwarders
33) Which of the following is true of distributors?
A) The use of distributors increases the exporter’s control over the price buyers are charged.
B) They are compensated with a fixed salary plus commissions based on the value of their sales.
C) They are seldom required to take ownership of the merchandise when it enters their country.
D) They can stunt the growth of the exporter’s market share by charging very high prices.
34) Which of the following occurs when a company sells its products to intermediaries who then
resell to buyers in a target market?
A) indirect exporting
B) counterpurchase
C) an acquisition
D) a joint venture
35) Companies involved in direct exporting typically rely on ________.
A) distributors
B) agents
C) export management companies
D) export trading companies
36) A(n) ________ exports products on behalf of an indirect exporter.
A) local distributor
B) subsidiary
C) sales representative
D) export management company
37) The biggest advantage of an export management company is usually its ________.
A) knowledge of the target market’s cultural, political, legal, and economic conditions
B) well-developed and extensive distribution channels and storage facilities
C) well-rounded experience in countertrade-related activities
D) financial understanding of investment projects and its manufacturing expertise
38) Selling goods or services that are paid for, in whole or part, with other goods or services is
called ________.
A) indirect exporting
B) countertrade
C) licensing
D) a joint venture
39) Which of the following refers to the exchange of goods or services directly for other goods
or services without the use of money?
A) offset
B) barter
C) counterpurchase
D) switch trading
40) Which of the following allows a country to earn back some of the currency it pays out for
imports?
A) switch trading
B) counterpurchase
C) buyback
D) barter
41) Which of the following is the oldest known form of countertrade?
A) counterpurchase
B) switch trading
C) offset
D) barter
42) The sale of goods and services to a country by a company that promises to buy a specific
product from that country in the future is called a(n) ________.
A) counterpurchase
B) offset
C) joint venture
D) barter
43) A company proposes that in exchange for a hard-currency sale, it will make a hard-currency
purchase of an unspecified product from the buyer nation in the future. Which of the following is
the company proposing?
A) a counterpurchase
B) an offset
C) a buyback
D) a barter
44) An offset agreement differs from a counterpurchase agreement in that an offset agreement
________.
A) fails to specify the type of product that must be purchased
B) fails to specify the amount that will be spent on the purchase
C) fails to give a business greater freedom in fulfilling its end of a countertrade deal
D) fails to make a hard-currency purchase of any product from that nation in the future
45) ________ is a countertrade whereby one company sells to another its obligation to make a
purchase in a given country.
A) Franchising
B) Joint venture
C) Switch trading
D) Barter
46) Buyback is defined as ________.
A) the export of industrial equipment in return for products produced by that equipment
B) an agreement that a company will offset a hard-currency sale to a nation by making a hard-
currency purchase of an unspecified product from that nation in the future
C) the sale of goods or services to a country by a company that promises to make a future
purchase of a specific product from that country
D) the exchange of goods or services for a certain amount of money
47) A form of countertrade that usually typifies long-term relationships between the companies
involved is called ________.
A) barter
B) franchising
C) offset
D) buyback
48) Which of the following statements is true of countertrade?
A) Countertrade is practiced by countries when there is a lack of hard currency.
B) Countertrade involves products whose prices on world markets tend to remain steady.
C) Countertrade usually involves industrial products and computer softwares.
D) Hedging risk in countertrade is prohibited.
49) Which of the following is a method of export/import financing?
A) offset
B) buyback
C) switch trading
D) documentary collection
50) Which of the following normally takes the form of a wire transfer of money from the bank
account of the importer directly to that of the exporter prior to shipment of merchandise?
A) documentary collection
B) letter of credit
C) advance payment
D) open account
51) Advance payment is commonly used for export/import financing when ________.
A) two parties are unfamiliar with each other
B) the buyer has obtained credit for the transaction
C) the transaction is for a relatively high amount
D) the buyer has good credit rating at banks
52) Export/import financing in which a bank acts as an intermediary without accepting financial
risk is called ________.
A) documentary collection
B) counterpurchase
C) buyback
D) open account
53) Which of the following financing methods entails the greatest risk for importers?
A) documentary collection
B) advance payment
C) letter of credit
D) open account
54) Which of the following financing methods entails the greatest risk for exporters?
A) supersedeas bond
B) advance payment
C) letter of credit
D) open account
55) ________ is a payment method commonly used when there is an ongoing relationship
between the involved parties.
A) Advance payment
B) Documentary collection
C) Letter of credit
D) Open account
56) A document ordering the importer to pay the exporter a specified sum of money at a
specified time is called a ________.
A) bill of lading
B) letter of credit
C) bill of exchange
D) management contract
57) Which of the following requires an importer to pay for the imported goods when they are
delivered?
A) sight draft
B) inland bill of lading
C) air way bill of lading
D) time draft
58) A(n) ________ becomes a negotiable instrument that can be traded among financial
institutions when inscribed “accepted” by an importer.
A) sight draft
B) ocean bill of lading
C) time draft
D) inland bill of lading
59) Which of the following refers to a contract between the exporter and shipper that specifies
merchandise destination and shipping costs?
A) sight draft
B) bill of lading
C) letter of credit
D) bill of exchange
60) Which of the following is a method of export/import financing in which the importer’s bank
issues a document stating that the bank will pay the exporter when the exporter fulfills the terms
of the document?
A) sight draft
B) bill of lading
C) letter of credit
D) bill of exchange
61) A(n) ________ allows the bank to modify the terms of the letter only after obtaining the
approval of both exporter and importer.
A) bill of exchange
B) bill of lading
C) confirmed letter of credit
D) irrevocable letter of credit
62) Which of the following letters of credit can be modified without obtaining approval from
either the exporter or the importer, by the bank issuing the letter of credit?
A) revocable letter of credit
B) confirmed letter of credit
C) at sight letter of credit
D) usance letter of credit
63) A(n) ________ is guaranteed by both the exporter’s bank in the country of export and the
importer’s bank in the country of import.
A) confirmed letter of credit
B) transferrable letter of credit
C) revocable letter of credit
D) irrevocable letter of credit
64) Letters of credit are popular among traders because most of the risks are assumed by
________.
A) distributors
B) importers
C) exporters
D) banks
65) Export/import financing in which an exporter ships merchandise and later bills the importer
for its value is called ________.
A) advance payment
B) open account
C) a letter of credit
D) documentary collection
66) Which of the following is a contractual entry mode?
A) wholly owned subsidies
B) turnkey projects
C) joint ventures
D) strategic alliances
67) Which of the following is a contractual entry mode in which a company owning intangible
property grants another firm the right to use that property for a specified period of time?
A) franchising
B) licensing
C) management contract
D) strategic alliance
68) Which of the following statements is true of licensing?
A) Licensing restricts finances needed for international expansion.
B) Cross licensing grants a company the right to use a property but does not grant it sole access
to a market.
C) A major advantage of licensing is that it is the least risky method of international expansion.
D) Licensing increases the likelihood that a licensor’s product will appear on the black market.
69) Which of the following is a contractual entry mode in which one company supplies another
with intangible property and other assistance over an extended period?
A) franchising
B) management contract
C) licensing
D) strategic alliance
70) Which of the following statements best differentiates between franchising and licensing?
A) Licensing gives a company greater control than franchising over the sale of its product in a
target market.
B) Franchising is common in manufacturing industries while licensing is primarily used in
service industries.
C) Franchising requires ongoing assistance from the franchiser while licensing normally involves
a one-time transfer of property.
D) Licensees must often meet strict guidelines on product quality, day-to-day management
duties, and marketing promotions unlike franchisees.
71) When one company is hired to design, construct, and test a production facility for a client,
the arrangement is called ________.
A) a turnkey project
B) licensing
C) a joint venture
D) franchising
72) Which of the following is an investment entry mode?
A) licensing
B) franchising
C) joint venture
D) turnkey project
73) Which of the following is an advantage of wholly owned subsidiaries?
A) The parent company receives all profits generated by the subsidiary.
B) They are the least expensive investment entry modes.
C) They help in the sharing of the cost of an international investment project.
D) They are the least risky when compared to other investment entry modes.
74) A ________ is a separate company created and owned by two or more independent entities
to achieve a common business objective.
A) wholly owned subsidiary
B) joint venture
C) strategic alliance
D) turnkey project
75) Which of the following types of joint ventures involve parties investing together in
downstream business activities?
A) backward integration
B) forward integration
C) multistage
D) buyback