40.
To maximize the learning benefits of an alliance, a firm must try to learn
from its partner and then apply the knowledge within its own organization.
TRUE
To maximize the learning benefits of an alliance, a firm must try to learn
from its partner and then apply the knowledge within its own organization.
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
Multiple Choice Questions
41.
Other things being equal, the benefit-cost-risk trade-off is likely to be most
favorable in:
A.
politically unstable developing nations that operate with a mixed or
command economy.
B.
nations where there is a dramatic upsurge in either inflation rates or
private-sector debt.
C.
politically stable developed and developing nations that have free market
systems.
D.
developing nations where speculative financial bubbles have led to
excess borrowing.
The trade-off is likely to be least favorable in politically unstable developing
nations that operate with a mixed or command economy or in developing
nations where speculative financial bubbles have led to excess borrowing.
AACSB: Analytic
Blooms: Remember
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
42.
Early entrants to a market that are able to create switching costs that tie
the customer to the product are capitalizing on ______.
A.
first-mover advantages
B.
C.
economies of scale
D.
late-mover advantages
The advantages frequently associated with entering a market early are
commonly known as first-mover advantages.
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
43.
Which of the following is a first-mover advantage?
A.
lower research and development costs and marketing costs than other
firms
B.
ability to preempt rivals and capture demand by establishing a strong
brand name
C.
ability to capitalize on the work done by other firms
D.
creation of innovative products at lower costs than other firms
The advantages frequently associated with entering a market early are
commonly known as first-mover advantages. One first-mover advantage is
the ability to preempt rivals and capture demand by establishing a strong
brand name.
AACSB: Reflective Thinking
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
44.
Switching costs:
A.
drive early entrants out of the market.
B.
make it easy for later entrants to win business.
C.
make it difficult for later entrants to win business.
D.
give later entrants a cost advantage over early entrants.
The ability of early entrants to create switching costs that tie customers
into their products or services is a first-mover advantage.
AACSB: Analytic
Blooms: Remember
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
45.
The costs of promoting and establishing a product offering when a firm
enters a foreign market prior to its rivals are known as _____.
A.
switching costs
B.
market development costs
C.
D.
promotional development costs
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
46.
A large-scale entrant is more likely than a small-scale entrant to be able to
capture first-mover advantages associated with _____.
A.
scale economies
B.
diseconomies of scale
C.
D.
diseconomies of scope
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
47.
Which of the following statements about small-scale entry is true?
A.
The commitment associated with a small-scale entry makes it possible
for the small-scale entrant to capture first-mover advantages.
B.
Small-scale entry is a way to gather information about a foreign market
before deciding whether to enter on a significant scale.
C.
By giving a firm time to collect information, small-scale entry increases
the risks associated with a subsequent large-scale entry.
D.
Small-scale entry limits a firm’s ability to learn about a foreign market
thereby also limiting the firm’s exposure to that market.
Small-scale entry allows a firm to learn about a foreign market while
limiting the firm’s exposure to that market. By giving the firm time to collect
information, small-scale entry reduces the risks associated with a
subsequent large-scale entry. But the lack of commitment associated with
small-scale entry may make it more difficult for the small-scale entrant to
build market share and to capture first-mover or early-mover advantages.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 3 Hard
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
48.
If a firm can realize location economies by moving production elsewhere, it
should avoid:
A.
exporting.
B.
turnkey contracts.
C.
licensing.
D.
wholly owned subsidiaries.
Particularly for firms pursuing global or transnational strategies, it may be
preferable to manufacture where the mix of factor conditions is most
favorable from a value creation perspective and to export to the rest of the
world from that location.
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
49.
Which of the following is a distinct advantage of exporting?
A.
It avoids the threat of tariff barriers by the host-country government.
B.
Firms benefit from a local partner’s knowledge of the host country’s
competitive conditions.
C.
It avoids the often substantial costs of establishing manufacturing
operations in the host country.
D.
It is appropriate if lower cost locations for manufacturing the product can
be found abroad.
Another advantage of exporting is that it helps a firm achieve experience
curve and location economies.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
50.
When an exporting firm finds that its local agent is also carrying
competitors’ products, the firm may switch to a _____ to handle local
marketing, sales, and service.
A.
wholly owned subsidiary
B.
franchising arrangement
C.
turnkey operation
D.
licensing agreement
By doing this, the firm can exercise tight control over marketing and sales in
the country while reaping the cost advantages of manufacturing the product
in a single location, or a few choice locations.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
51.
In _____, the contractor agrees to handle every detail of the project for a
foreign client, including the training of operating personnel.
A.
exporting
B.
licensing
C.
franchising
D.
turnkey projects
In a turnkey project, the contractor agrees to handle every detail of the
project for a foreign client, including the training of operating personnel. At
completion of the contract, the foreign client is handed the “key” to a plant
that is ready for full operation—hence, the term turnkey.
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
52.
Turnkey projects are most common in which of the following industries?
A.
fresh fruit, grain, and meat products
B.
chemical, pharmaceutical, and metal refining
C.
consumer durables, computer peripherals, and automotive parts
D.
apparel, shoes, and leather products
Turnkey projects are most common in the chemical, pharmaceutical,
petroleum-refining, and metal-refining industries, all of which use complex,
expensive production technologies.
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
53.
Which of the following statements is true of turnkey projects?
A.
Turnkey projects are most common in industries which use simple,
inexpensive production technologies.
B.
A turnkey strategy can be more risky than conventional FDI.
C.
A turnkey strategy is particularly useful where FDI is limited by host-
government regulations.
D.
Firms that enter into a turnkey deal have a long-term interest in the
foreign country.
Turnkey projects are a way of earning great economic returns from that
asset. The strategy is particularly useful where FDI is limited by host-
government regulations.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
54.
Many American firms that sold oil-refining technology to firms in the Gulf
now find themselves competing with these firms in the world oil market.
This is an example of:
A.
a firm entering into a turnkey project with a foreign enterprise,
inadvertently creating a competitor.
B.
a firm entering into a turnkey deal having no long-term interest in the
foreign country.
C.
a country subsequently proving to be a major market for the output of the
process that has been exported.
D.
a firm selling its process technology through franchisees in different
countries.
A drawback of turnkey strategy is that if the firm’s process technology is a
source of competitive advantage, then selling this technology through a
turnkey project is also selling competitive advantage to potential and/or
actual competitors.
55.
An arrangement whereby a firm grants the right of intangible property to
another entity for a specified time period in exchange for royalties is a(n)
_____ agreement.
A.
turnkey
B.
licensing
C.
greenfield
D.
acquisition
A licensing agreement is an arrangement whereby a licensor grants the
rights to intangible property to another entity (the licensee) for a specified
period, and in return, the licensor receives a royalty fee from the licensee.
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
56.
Patents, inventions, formulas, processes, designs, copyrights, and
trademarks are all forms of _____.
A.
licensing agreements
B.
franchising agreements
C.
intangible property
D.
tangible property
Intangible property includes patents, inventions, formulas, processes,
designs, copyrights, and trademarks.
AACSB: Analytic
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
57.
What is the primary advantage of licensing?
A.
It helps a firm avoid the development costs associated with opening a
foreign market.
B.
It gives a firm the tight control over manufacturing, marketing, and
strategy.
C.
It helps a firm achieve experience curve and location economies.
D.
It increases a firm’s ability to utilize a coordinated strategy.
The primary advantage of licensing is that the firm does not have to bear
the development costs and risks associated with opening a foreign market.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
58.
Which of the following is a disadvantage of licensing?
A.
It does not help firms that lack capital to develop operations overseas.
B.
It does not give a firm the tight control over strategy that is required for
realizing experience curve and location economies.
C.
It cannot be used when a firm possesses some intangible property that
might have business applications.
D.
The firm has to bear the development costs and risks associated with
opening a foreign market.
Licensing typically involves each licensee setting up its own production
operations. This severely limits the firm’s ability to realize experience curve
and location economies by producing its product in a centralized location.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
59.
Under a(n) _____ agreement, a firm might license some valuable intangible
property to a foreign partner, but in addition to a royalty payment, the firm
might also request that the foreign partner license some of its valuable
know-how to the firm.
A.
integrated licensing
B.
chartering
C.
franchising
D.
cross-licensing
Under a cross-licensing agreement, a firm might license some valuable
intangible property to a foreign partner, but in addition to a royalty payment,
the firm might also request that the foreign partner license some of its
valuable know-how to the firm.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes