60.
Cross-licensing agreements are increasingly common in the _____
industries.
A.
transportation
B.
high-technology
C.
construction
D.
consumer durables
Cross-licensing agreements enable firms to hold each other hostage, which
reduces the probability that they will behave opportunistically toward each
other. Such cross-licensing agreements are increasingly common in high-
technology industries.
61.
_____ is pursued primarily by manufacturing firms and _____ is employed
primarily by service firms.
A.
Licensing; franchising
B.
Franchising; licensing
C.
Franchising; exporting
D.
Exporting; licensing
Whereas licensing is pursued primarily by manufacturing firms, franchising
is employed primarily by service firms.
62.
If a service firm wants to build a global presence quickly and at a relatively
low cost and risk, it must employ _____.
A.
chartering
B.
exporting
C.
a turnkey strategy
D.
franchising
Franchising is similar to licensing and is employed primarily by service
firms.
63.
Which of the following statements about franchising is true?
A.
It guarantees consistent product quality.
B.
It tends to involve more short-term commitments than licensing.
C.
It is a specialized form of licensing.
D.
It is employed primarily by manufacturing firms.
Franchising is a specialized form of licensing in which the franchiser not
only sells intangible property (normally a trademark) to the franchisee, but
also insists that the franchisee agree to abide by strict rules as to how it
does business.
64.
Which of the following is an advantage of franchising?
A.
A firm takes profits out of one country to support competitive attacks in
another.
B.
A firm is relieved of many of the costs and risks of opening a foreign
market on its own.
C.
It guarantees consistent product quality and achieves experience curve
and location economies.
D.
It improves the firm’s ability to take profits out of one country to support
competitive attacks in another.
The advantages of franchising as an entry mode are very similar to those of
licensing. The firm is relieved of many of the costs and risks of opening a
foreign market on its own. Instead, the franchisee typically assumes those
costs and risks. This creates a good incentive for the franchisee to build a
profitable operation as quickly as possible.
65.
Firms engaging in a _____ with a local company can benefit from a local
partner’s knowledge of the host country’s competitive conditions, culture,
language, political systems, and business systems.
A.
turnkey project
B.
joint venture
C.
greenfield investment
D.
licensing arrangement
In a joint venture, a firm benefits from a local partner’s knowledge of the
host country’s competitive conditions, culture, language, political systems,
and business systems.
66.
The most typical joint venture is a _____ venture.
A.
50/50
B.
60/40
C.
75/25
D.
10/90
The most typical joint venture is a 50/50 venture, in which there are two
parties, each of which holds a 50 percent ownership stake and contributes a
team of managers to share operating control.
67.
Which of the following is an advantage of establishing a joint venture?
A.
Joint ventures with local partners do not face any risk of being subject to
nationalization or other forms of adverse government interference.
B.
Joint ventures give a firm a tight control over subsidiaries that it might
need to realize experience curve or location economies.
C.
When the development costs and/or risks of opening a foreign market
are high, a firm might gain by sharing these costs and or risks with a
local partner.
D.
The firm is deprived of the knowledge of the host country’s competitive
conditions, culture, language, etc.
A firm benefits from a local partner’s knowledge of the host country’s
competitive conditions, culture, language, political systems, and business
systems. When the development costs and/or risks of opening a foreign
market are high, a firm might gain by sharing these costs and or risks with a
local partner.
68.
In a _____, the firm owns 100 percent of the stock.
A.
joint venture
B.
wholly owned subsidiary
C.
turnkey project
D.
franchising agreement
In a wholly owned subsidiary, the firm owns 100 percent of the stock and
must bear the full costs and risks of entering a foreign market.
69.
Which of the following is true of wholly owned subsidiaries?
A.
It is the least expensive method of serving a foreign market from a
capital investment standpoint.
B.
It the most feasible entry mode due to the political considerations.
C.
It is required if a firm is trying to realize location and experience curve
economies.
D.
It is particularly useful where FDI is limited by host-government
regulations.
A wholly owned subsidiary may be required if a firm is trying to realize
location and experience curve economies (as firms pursuing global and
transnational strategies try to do).
70.
A wholly owned subsidiary is appropriate when:
A.
the firm wants to share the cost and risk of developing a foreign market.
B.
the firm wants 100 percent of the profits generated in a foreign market.
C.
the firm wants a plant that is ready to operate.
D.
the firm wants to test a market.
Establishing a wholly owned subsidiary gives the firm a 100 percent share in
the profits generated in a foreign market.
71.
If a firm’s core competency is based on control over proprietary
technological know-how, _____ and _____ arrangements should be avoided
if possible to minimize the risk of losing control over that technology.
A.
licensing; joint-venture
B.
wholly owned subsidiary; exporting
C.
turnkey contracts; exporting
D.
exporting; joint-venture
If a firm’s core competence is based on control over proprietary
technological know-how, licensing and joint-venture arrangements should
be avoided if possible to minimize the risk of losing control over that
technology.
72.
If a high-tech firm sets up operations in a foreign country to profit from a
core competency in technological know-how, which of the following entry
strategy is best?
A.
joint ventures
B.
licensing
C.
wholly owned subsidiaries
D.
turnkey contacts
If a high-tech firm sets up operations in a foreign country to profit from a
core competency in technological know-how, it will probably do so through
a wholly owned subsidiary.
73.
The valuable asset of firms, whose competitive advantage is based on
management know-how, is their _____.
A.
top management staff
B.
USP
C.
advertisements
D.
brand name
These firms’ valuable asset is their brand name, and brand names are
generally well protected by international laws pertaining to trademarks.
74.
Most service firms have found that _____ with local partners work best for
controlling subsidiaries.
A.
joint ventures
B.
licensing agreements
C.
greenfield investments
D.
turnkey projects
The subsidiaries may be wholly owned or joint ventures, but most service
firms have found that joint ventures with local partners work best for the
controlling subsidiaries. A joint venture is often politically more acceptable
and brings a degree of local knowledge to the subsidiary.
75.
A firm can establish a wholly owned subsidiary in a country by building a
subsidiary from the ground up, called the _____.
A.
joint venture
B.
turnkey strategy
C.
licensing agreement
D.
greenfield strategy
A firm can establish a wholly owned subsidiary in a country by building a
subsidiary from the ground up, the so-called greenfield strategy, or by
acquiring an enterprise in the target market.
76.
Which of the following is true of acquisitions?
A.
It is a time-consuming process and takes a lot of time to execute.
B.
They are less risky than greenfield ventures in the sense that there is
less potential for unpleasant surprises.
C.
They give the firm a much greater ability to build the kind of subsidiary
company that it wants.
D.
In many cases, firms make acquisitions to preempt their competitors.
The need for preemption is particularly great in markets that are rapidly
globalizing, such as telecommunications, where a combination of
deregulation within nations and liberalization of regulations governing
cross-border foreign direct investment has made it much easier for
enterprises to enter foreign markets through acquisitions.
77.
According to the _____, top managers typically overestimate their ability to
create value from an acquisition.
A.
misvaluation theory
B.
performance extrapolation hypothesis
C.
market timing theory
D.
hubris hypothesis
The hubris hypothesis postulates that top managers typically overestimate
their ability to create value from an acquisition, primarily because rising to
the top of a corporation has given them an exaggerated sense of their own
capabilities.
78.
To increase the potential for a successful acquisition, a firm should:
A.
always bid low to allow for partial failure.
B.
try to acquire a firm with a very different corporate culture so there is no
forced “overlap.”
C.
screen the foreign enterprise to be acquired.
D.
seek companies only from similar national cultures.
Screening the foreign enterprise to be acquired, including a detailed
auditing of operations, financial position, and management culture, can help
to make sure the firm does not pay too much for the acquired unit, does not
uncover any nasty surprises after the acquisition, and acquires a firm whose
organization culture is not antagonistic to that of the acquiring enterprise.
79.
Firms entering markets where there are no incumbent competitors to be
acquired should choose:
A.
greenfield investments.
B.
joint ventures.
C.
acquisitions.
D.
takeovers.
In such cases, it may be better to enter by the slower route of a greenfield
venture than to make a bad acquisition.