Chapter 15 Entry Strategy and Strategic Alliances
True / False Questions
1.
The choice of which markets to enter should be driven by an assessment of
relative long-run growth and profit potential.
TRUE
The choice of which markets to enter should be driven by an assessment of
relative long run growth and profit potential.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which
markets to enter; when to enter those markets; and on what scale.
Topic: Introduction
2.
The attractiveness of a country as a potential market for an international
business depends on balancing the benefits, costs, and risks associated
with doing business in that country.
TRUE
The attractiveness of a country as a potential market for an international
business depends on balancing the benefits, costs, and risks associated
with doing business in that country.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which
markets to enter; when to enter those markets; and on what scale.
Topic: Basic Entry Decisions
3.
The costs and risks associated with doing business in a foreign country are
typically high in an economically advanced and politically stable democratic
nation.
FALSE
The costs and risks associated with doing business in a foreign country are
typically lower in economically advanced and politically stable democratic
nations, and they are greater in less developed and politically unstable
nations.
Learning Objective: 15-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which
markets to enter; when to enter those markets; and on what scale.
Topic: Basic Entry Decisions
4.
The value an international business creates in a foreign market depends on
the suitability of its product offering to that market and the nature of
indigenous competition.
TRUE
The value an international business can create in a foreign market depends
on the suitability of its product offering to that market and the nature of
indigenous competition.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which
markets to enter; when to enter those markets; and on what scale.
Topic: Basic Entry Decisions
5.
First-mover advantages are the advantages associated with entering a
market early.
TRUE
The advantages frequently associated with entering a market early are
commonly known as first-mover advantages.
AACSB: Analytic
Learning Objective: 15-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which
markets to enter; when to enter those markets; and on what scale.
Topic: Basic Entry Decisions
6.
Costs that an early entrant has to bear that a later entrant can avoid are
known as first-mover costs.
FALSE
Pioneering costs are costs that an early entrant has to bear that a later
entrant can avoid.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which
markets to enter; when to enter those markets; and on what scale.
Topic: Basic Entry Decisions
7.
Educating customers is a part of pioneering costs.
TRUE
Pioneering costs include the costs of promoting and establishing a product
offering, including the costs of educating customers.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which
markets to enter; when to enter those markets; and on what scale.
Topic: Basic Entry Decisions
8.
A strategic commitment can be reversed by the top management according
to their convenience.
FALSE
A strategic commitment has a long-term impact and is difficult to reverse.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 15-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which
markets to enter; when to enter those markets; and on what scale.
Topic: Basic Entry Decisions
9.
Large strategic commitments increase strategic flexibility.
FALSE
Strategic commitments, such as rapid large-scale market entry, can have an
important influence on the nature of competition. Large strategic
commitments limit strategic flexibility.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 15-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which
markets to enter; when to enter those markets; and on what scale.
Topic: Basic Entry Decisions
10.
A small-scale entrant is more likely than a large-scale entrant to capture
first-mover advantages associated with demand preemption, scale
economies, and switching costs.
FALSE
The large-scale entrant is more likely than the small-scale entrant to be
able to capture first-mover advantages associated with demand
preemption, scale economies, and switching costs.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which
markets to enter; when to enter those markets; and on what scale.
Topic: Basic Entry Decisions
11.
Small-scale entry allows a firm to learn about a foreign market while
limiting the firm’s exposure to that market.
TRUE
Small-scale entry allows a firm to learn about a foreign market while
limiting the firm’s exposure to that market.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which
markets to enter; when to enter those markets; and on what scale.
12.
Exporting is advantageous because it avoids the cost of establishing
manufacturing operations in the host country and because it may help a
firm achieve experience curve and location economies.
TRUE
Exporting has two distinct advantages. First, it avoids the often substantial
costs of establishing manufacturing operations in the host country. Second,
exporting may help a firm achieve experience curve and location economies.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13.
Exporting is most appropriate when lower-cost locations for manufacturing
the product can be found abroad.
FALSE
Exporting may not be appropriate if lower-cost locations for manufacturing
the product can be found abroad.
AACSB: Reflective Thinking
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
14.
In a turnkey project, the contractor agrees to handle every detail of the
project for a foreign client.
TRUE
In a turnkey project, the contractor agrees to handle every detail of the
project for a foreign client.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
15.
An advantage of turnkey projects is that the firm that enters into a turnkey
deal will have no long-term interest in the foreign country.
FALSE
A drawback of turnkey projects is that the firm that enters into a turnkey
deal will have no long-term interest in the foreign country.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
16.
Tangible property includes patents, designs, copyrights, and trademarks.
FALSE
Intangible property includes patents, inventions, formulas, processes,
designs, copyrights, and trademarks.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
17.
Licensing limits the firm’s ability to realize experience curve and location
economies by producing its product in a centralized location.
TRUE
Licensing limits the firm’s ability to realize experience curve and location
economies by producing its product in a centralized location.
AACSB: Reflective Thinking
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
18.
By its very nature, licensing increases a firm’s ability to utilize a coordinated
strategy.
FALSE
Competing in a global market may require a firm to coordinate strategic
moves across countries by using profits earned in one country to support
competitive attacks in another. By its very nature, licensing limits a firm’s
ability to do this.
AACSB: Reflective Thinking
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
19.
McDonald’s is an example of a firm that uses a franchising strategy.
FALSE
The franchiser often assists the franchisee to run the business on an
ongoing basis. As with licensing, the franchiser typically receives a royalty
payment, which amounts to some percentage of the franchisee’s revenues.
McDonald’s is a good example of a firm that has grown by using a
franchising strategy.
20.
Franchising enables a firm to quickly build a global presence.
TRUE
Using a franchising strategy, a service firm can build a global presence
quickly and at a relatively low cost and risk.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
21.
The most typical joint venture is a 25/75 venture.
FALSE
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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
22.
An advantage of joint ventures with a local partner is the knowledge of the
local environment that the local partner contributes to the venture.
TRUE
A firm benefits from a local partner’s knowledge of the host country’s
competitive conditions, culture, language, political systems, and business
systems.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
23.
A wholly owned subsidiary limits a firm’s control over operations in different
countries.
FALSE
A wholly owned subsidiary gives a firm tight control over operations in
different countries.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
24.
Firms entering a market via a wholly owned subsidiary must bear all the
costs and risks associated with the venture.
TRUE
Establishing a wholly owned subsidiary is generally the most costly method
of serving a foreign market from a capital investment standpoint. Firms
doing this must bear the full capital costs and risks of setting up overseas
operations.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
25.
Brand names are generally well-protected by international laws pertaining
to trademarks.
TRUE
Brand names are generally well-protected by international laws pertaining
to trademarks.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-03 Identify the factors that influence a firm’s choice of entry mode.
26.
A joint venture is often politically more acceptable than a wholly owned
subsidiary and brings a degree of local knowledge to the subsidiary.
TRUE
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.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 15-03 Identify the factors that influence a firm’s choice of entry mode.
Topic: Selecting an Entry Mode
27.
Firms pursuing global standardization or transnational strategies tend to
prefer joint-venture arrangements over wholly owned subsidiaries.
FALSE
Firms pursuing global standardization or transnational strategies tend to
prefer establishing wholly owned subsidiaries.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 15-03 Identify the factors that influence a firm’s choice of entry mode.
28.
Acquisitions are quick to execute.
TRUE
By acquiring an established enterprise, a firm can rapidly build its presence
in the target foreign market.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
29.
Acquisitions rarely produce disappointing results.
FALSE
Acquisitions often produce disappointing results.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
30.
Overpayment for assets of an acquired firm is one reason acquisitions fail.
TRUE
Acquisitions fail for several reasons. The acquiring firms often overpay for
the assets of the acquired firm.
AACSB: Reflective Thinking
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
31.
The main advantage of greenfield investment is that it gives the firm a much
greater ability to build the kind of subsidiary company that it wants.
TRUE
The big advantage of establishing a greenfield venture in a foreign country
is that it gives the firm a much greater ability to build the kind of subsidiary
company that it wants.
AACSB: Reflective Thinking
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
32.
Greenfield ventures are less risky than acquisitions in the sense that there
is less potential for unpleasant surprises.
TRUE
Greenfield ventures are less risky than acquisitions in the sense that there
is less potential for unpleasant surprises.
AACSB: Reflective Thinking
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
33.
If a firm is trying to enter a market where there are already well-established
companies, and where global competitors are also interested in establishing
a presence, the firm should choose a greenfield investment.
FALSE
If the firm is seeking to enter a market where there are already well-
established incumbent enterprises, and where global competitors are also
interested in establishing a presence, it may pay the firm to enter via an
acquisition.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 2 Medium
34.
Unlike joint ventures, strategic alliances require the firm to bear all the
costs and risks of foreign expansion.
FALSE
Strategic alliances allow firms to share the fixed costs (and associated
risks) of developing new products or processes.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 15-05 Evaluate the pros and cons of entering into strategic alliances.
Topic: Strategic Alliances
35.
An alliance is a way to bring together complementary skills and assets that
neither company could easily develop on its own.
TRUE
An alliance is a way to bring together complementary skills and assets that
neither company could easily develop on its own.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-05 Evaluate the pros and cons of entering into strategic alliances.
Topic: Strategic Alliances
36.
A good ally will expropriate the firm’s technological know-how while giving
away little in return.
FALSE
A good partner is unlikely to try to opportunistically exploit the alliance for
its own ends, that is, to expropriate the firm’s technological know-how while
giving away little in return.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-05 Evaluate the pros and cons of entering into strategic alliances.
Topic: Strategic Alliances
37.
Contractual safeguards cannot be written into an alliance agreement to
guard against the risk of opportunism by a partner.
FALSE
Contractual safeguards can be written into an alliance agreement to guard
against the risk of opportunism by a partner.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-05 Evaluate the pros and cons of entering into strategic alliances.
Topic: Strategic Alliances
38.
Cross-licensing agreements can be used to formalize arrangements to swap
skills and technology in a strategic alliance.
TRUE
Both parties to an alliance can agree in advance to swap skills and
technologies that the other covets, thereby ensuring a chance for equitable
gain. Cross-licensing agreements are one way to achieve this goal.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 15-05 Evaluate the pros and cons of entering into strategic alliances.
Topic: Strategic Alliances
39.
Relational capital refers to the building of interpersonal relationships
between the firms’ managers in a strategic alliance.
TRUE
Managing an alliance successfully requires building interpersonal
relationships between the firms’ managers, or what is sometimes referred
to as relational capital.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 15-05 Evaluate the pros and cons of entering into strategic alliances.
Topic: Strategic Alliances