International Business, 14e (Daniels et al.)
Chapter 14 Direct Investment and Collaborative Strategies
1) Coca-Cola collaborates extensively abroad, but it refuses collaboration that might imperil control of
its core competency. As a result, which of the following is NOT one of its international collaborative
forms?
A) sharing ownership in the production of its secret formula concentrate
B) using franchisers to bottle, sell, and deliver Coke beverages
C) licensing Coke’s trademark for use on products in which it lacks skills
D) forming joint ventures with companies that provide supplies for Coke products
2) All of the following are ways that Coca-Cola has been attempting to increase its global sales
EXCEPT ________.
A) gaining licenses to use brand names of other companies
B) acquiring companies with complementary products
C) adding alcoholic beverages to its product line
D) distributing soft drinks from other companies
3) Which of the following is the LEAST likely reason that consumers would prefer domestically made
products over imports?
A) belief that imports are subsidized
B) feelings of national pride and sentiment
C) negative associations with products from certain countries
D) concerns that parts will be difficult to obtain for foreign products
4) A U.S. firm plans to shift from exporting to production in China to serve the Chinese market. Which
of the following statements would best explain this decision?
A) China’s currency is appreciating relative to the U.S. dollar.
B) The firm is nearing capacity utilization in its U.S. plant.
C) The company need not alter its products for the Chinese market.
D) Transportation costs have become low relative to production costs.
5) Small economies are sometimes less successful than large countries in attracting FDI by raising
import restrictions. What is the most likely reason for this?
A) Large economies impose higher trade restrictions.
B) Transportation costs are generally higher in small economies.
C) People in small economies are more nationalistic in their purchases.
D) Small economies frequently lack sufficient markets for large-scale production.
6) A U.S. firm owns 100% of its production facility in Brazil, thus is most likely using a ________
strategy.
A) comprehensive ownership
B) vertical integration
C) appropriability
D) internalization
7) A U.S. firm with a production facility in Brazil uses its own personnel to handle almost all activities
because their outsourcing would be too costly and inefficient. Its internalization will most likely lead to
cost savings because the firm can avoid ________.
A) costly customs brokers
B) high, fixed start-up costs
C) the costs of enforcing an agreement
D) sharing profits
8) Appropriability theory refers to ________.
A) denying rivals access to competitive resources such as management know-how
B) categorizing the appropriateness of a firm’s foreign investments in terms of host country objectives
C) explaining an investing firm’s choice of partner in a joint venture
D) predicting the general pattern of direct investment locations
9) Why can a company more easily pursue a global strategy when it owns 100 percent of foreign
operations?
A) The company is not likely to face overcapacity issues.
B) The company limits foreign exchange rates fluctuations.
C) The company avoids communication misunderstandings.
D) The company can sub-optimize results in one country in order to optimize results globally.
10) A U.S. firm is acquiring an existing company in Germany rather than starting up a new foreign
operation. Which of the following statements best supports this decision?
A) Because the German firm is performing poorly, there is a good turn-around opportunity.
B) The U.S. firm’s U.S. facility is working at capacity.
C) Stock market prices have been very high in Germany.
D) The German firm has skilled personnel that the U.S. firm cannot hire at a good price on its own.
11) A company that makes a foreign investment largely to acquire knowledge is most likely to use
________ as a means of expansion.
A) a greenfield investment
B) internalization
C) an acquisition
D) a licensing agreement
12) Executives at a U.S. firm are debating whether to start a new operation in Russia or acquire an
existing one. Which of the following factors best supports a decision to start up a new operation in
Russia?
A) The Russian government places restrictions on the outward transfer of foreign capital.
B) Labor relations at existing Russian firms are poor and difficult to change.
C) Russia’s currency is weak and stock market prices are significantly depressed.
D) Existing companies have goodwill and positive brand recognition in Russia.
13) A greenfield investment is another name for a company’s decision to ________.
A) acquire an interest in an existing foreign operation
B) implement sustainable marketing practices
C) construct a new facility in a foreign market
D) build a facility for a local company
14) In which of the following situations would Company X most likely seek a collaborative arrangement
with Company Z in which Company Z would handle work for Company X?
A) Company X has excess capacity.
B) Fixed costs for the work are high, and Company X has large volumes of work.
C) Company X is inexperienced in outsourcing work.
D) Fixed costs for the work are high, and Company X has small volumes of work.
15) Which of the following is an argument for using a collaborative agreement?
A) to prevent problems caused by minority shareholders
B) to preserve a concentration strategy
C) to secure vertical and horizontal links
D) to maintain better control
16) Coca-Cola has collaborative arrangements whereby it produces concentrate that it sells to other
companies to bottle its drinks. Which of the following terms best describes this type of arrangement?
A) vertical alliance
B) horizontal alliance
C) link alliance
D) scale alliance
17) Risk is an important factor for companies engaged in international business. One way a collaborative
arrangement helps minimize risk when operating abroad is by ________.
A) reducing the possibility of technological appropriation
B) freeing up resources so a company can diversify into more countries
C) preventing the entry of new competitors
D) eliminating losses from exchange rate depreciation abroad
18) In which of the following situations is a firm most likely to be able to choose the foreign operating
form it would most like to use?
A) Its main motive is to gain location-specific assets.
B) It has a desired and unique resource.
C) Its preference for entering foreign markets is via acquisition of foreign facilities.
D) It has little concern about appropriability.
19) The more a company engages in international collaborative arrangements as opposed to wholly
owned foreign operations, the more it is likely to ________.
A) decrease its exposure to political risk
B) increase its control over foreign operations
C) learn rapidly about foreign environments
D) protect its core assets
20) What is a key industry?
A) an industry that is locked up competitively by domestic producers
B) a turnkey operator specializing in the construction of infrastructure components
C) an industry that receives government subsidies
D) an industry that significantly affects the economy by virtue of its size or influence on other sectors
21) All of the following are arguments for governments to limit foreign control of key industries
EXCEPT which one?
A) Host countries don’t need foreign resources such as technology and export markets for these
industries.
B) History shows that home governments have used powerful foreign companies to influence policies in
the countries where they operate.
C) Important decisions can be made abroad that are contrary to the country’s best interest.
D) Foreign companies can find means of profiting in these industries without having to control them.
22) All of the following are arguments for permitting foreign control of key industries EXCEPT which
one?
A) Managers, whether in a foreign or local company, make decisions based on what they think is best
for the company rather than based on some local socio-economic agenda.
B) MNEs staff their organizations abroad mainly with local nationals and depend in part on their input
for making decisions.
C) Foreign governments can no longer use their home-based companies to influence policies abroad.
D) The security arguments for restrictions on foreign ownership are really just a sham to protect
politically powerful industries and employment.
23) Dependencia theory holds that ________.
A) countries should seek to diversify their economies
B) low-income countries have practically no power in dealings with MNEs
C) in a globalized world, no nation can be independent economically or politically
D) there is a natural division of labor whereby developing countries depend on production using fairly
unskilled labor and developed countries depend on highly educated workers
24) Chrysler granted South East Motor (a company in China) rights to produce its Grand Voyager
minivan for sale in China in exchange for a fee. This is an example of a(n) ________.
A) licensing agreement
B) bargaining school arrangement
C) technology appropriation
D) turnkey operation
25) Which of the following is an example of an exclusive license agreement?
A) Three licensees have worldwide rights to sell the product worldwide for three years, during which
time no other companies can use the asset.
B) The licensee is currently the only company using the intangible property, but the licensor has rights
to add other licensees.
C) One licensee gets rights for the north island of New Zealand, a second licensee gets rights for the
south island of New Zealand, and the licensor agrees to add no new licensees to New Zealand for the
next five years.
D) The licensee and licensor use the property in the same market.
26) Which of the following describes a cross-licensing agreement?
A) allocation of exclusive rights to a licensee to prevent competition
B) an agreement between two or more companies not to compete in each other’s home countries
C) an exchange of explicit knowledge for tacit knowledge
D) the exchange of intangible property rights between two or more companies
27) What is the primary reason for technology licensing to take place while a product is still in the
developmental stage?
A) to enable the licensor to receive some earnings in case the technology never becomes operative
B) to ensure that a product launches in various countries at about the same time
C) to gain funds to complete the development
D) to reduce transaction costs
28) Licensing companies commonly negotiate a “front-end” payment from licensees to cover ________
transfer costs.
A) employee
B) brand name
C) technology
D) copyright
29) Which of the following is NOT a factor affecting the payment amount of international licensing
contracts?
A) geographic scope of the sales territory
B) tax treaties between the parties’ home countries
C) length of time the asset will have market value
D) market experience of using the asset elsewhere
30) When a company wants to be compensated in a foreign subsidiary beyond its contribution in capital
and managerial resources, it often ________.
A) licenses intangible property to its subsidiary
B) negotiates a special agreement with the host government
C) establishes a management contract
D) sets up an equity alliance
31) Judson Baked Goods, a U.S. firm, grants the use of its trademark to a company in Sweden and
provides the Swedish company with operational assistance on a continuing basis. Judson is most likely
involved in ________.
A) a management contract
B) franchising
C) offshoring
D) appropriability
32) What is a master franchise?
A) the original agreement between the franchisor and franchisee
B) the franchisee with the highest revenue in a region
C) a franchisee with rights to open outlets on its own or develop subfranchises
D) the set of standard terms regulating the relationship between franchisor and franchisee
33) Lesser-known franchisors sometimes enter foreign countries with company-owned outlets. A reason
for doing this is to ________.
A) guarantee profits
B) avoid competition
C) compete with local stores
D) attract potential franchisees
34) Franchisees sometimes wish to change the product or service offered by the franchisor to better fit
local market needs abroad. Why are these changes a problem for franchisors?
A) Too many changes eliminate the need for the franchisors.
B) The royalties as a percentage of sales decrease.
C) Governments impose more stringent operating restrictions.
D) Sales decrease because consumers want to get the “real thing.”
35) Metro Hotels, a U.S. hotel chain, has transferred several of its employees to Myanmar where they
will work for three or four years before returning to the U.S. The employees will be working with a
Myanmar hotel to provide it with their extensive knowledge regarding how to run a hotel. Metro is most
likely involved in a ________.
A) franchise
B) turnkey operation
C) joint venture
D) management contract
36) For the provider, management contracts offer the advantage of ________.
A) receiving income without making a capital outlay
B) increasing their merchandise exports
C) reducing their global taxes
D) better access to raw materials
37) The advantage to host countries of international management contracts is that they ________.
A) receive state-of-the-art facilities
B) get assistance without foreign control
C) can pay in local currency
D) save on making capital investments
38) Hotel chains are large providers of international management services through collaborative
operations. All of the following are reasons for this EXCEPT which one?
A) Some governments have restricted foreign ownership in hotels.
B) Local hotel owners may be very knowledgeable about real estate, but know little about hotel
operations.
C) Local companies can forego making a capital investment.
D) Hotel chains can offer global brand recognition.
39) What is a turnkey operation?
A) a contract for the complete construction of an operating facility for a fee
B) a contract with a government to service one of its key industries
C) the buying of another company
D) the repatriation of equity
40) Which of the following firms would most likely be involved in a turnkey operation?
A) American Airlines
B) Bechtel Construction
C) Burger King
D) Microsoft
41) Turnkey projects generally differ from other forms of international business in that ________.
A) they tend to be smaller
B) customers are more likely private companies
C) they are more often located in remote areas
D) they depend almost entirely on acquisitions rather than greenfield operations
42) Why do turnkey operators often require a feasibility study as part of the contract?
A) By adding to the cost, they earn more money.
B) This lessens the risk of contract cancellation when political leadership changes.
C) This lowers their risk of foreign exchange losses.
D) This helps to define what constitutes “satisfactory completion” of the project.
43) What is an international joint venture?
A) an international agreement between two or more companies to have access to each other’s patents
B) the ownership of a company by two or more companies, of which at least one is a foreign company
where the venture is located
C) an international agreement between two or more firms for the use of a trademark
D) an agreement between two or more organizations to share management expertise
44) What is an international consortium?
A) the ownership of a company by a government and a foreign company
B) an agreement signed by most governments to protect intellectual property rights
C) an international joint venture owned by at least three organizations
D) an agreement between two or more governments to provide for reciprocal foreign investment
protection
45) All of the following would be examples of international joint ventures EXCEPT ________.
A) two Japanese companies sharing ownership of a company in Canada
B) a Danish company sharing ownership with a South African company in South Africa
C) a government-owned company from China sharing ownership with an Australian company in
Panama
D) two Venezuelan companies sharing ownership of a company in Venezuela
46) What is an equity alliance?
A) a collaborative arrangement in which at least one collaborating company takes an ownership position
in the other
B) a collaboration in which each contributor receives an equitable return based on relative contribution
C) a collaboration in which partners agree to share technology with each other
D) a wholly owned acquisition to prevent appropriation of intellectual property
47) Which of the following is LEAST likely to trigger the breakup of a joint venture?
A) The partners place a different degree of importance on the joint venture.
B) The partners develop different capabilities to contribute to the joint venture.
C) The partners come from different industries.
D) Objectives evolve differently over time.
48) When a large company and a small company enter a collaborative arrangement, ________.
A) the large company is expected to contribute more to the arrangement
B) the large company is likely to be more active in the venture
C) the small company is more likely to view the collaboration’s expansion as competition to itself
D) the small company is likely to be disadvantaged if legal action is necessary to solve a dispute