80.
_____ refer to cooperative agreements between potential or actual
competitors.
A.
Greenfield investments
B.
Strategic alliances
C.
Takeovers
D.
Licensing agreements
Strategic alliances refer to cooperative agreements between potential or
actual competitors.
81.
Which of the following statements is true of strategic alliances?
A.
The fixed costs and associated risks of developing new products or
processes are borne by the alliance partner.
B.
They are a way to bring together complementary skills and assets that
both companies develop.
C.
They limit the entry of firms into foreign markets.
D.
Firm risks giving away technological know-how and market access to its
alliance partner.
The disadvantage of a strategic alliance is that the firm risks giving away
technological know-how and market access to its alliance partner.
82.
Managing an alliance successfully requires building interpersonal
relationships between the firms’ managers. This is sometimes referred to as
_____.
A.
relational capital
B.
relational assets
C.
operational assets
D.
venture capital
Managing an alliance successfully requires building interpersonal
relationships between the firms’ managers, or what is sometimes referred
to as relational capital.
Essay Questions
83.
What are first-mover advantages? Discuss the advantages associated with
them.
First-mover advantages are the advantages frequently associated with
entering a market early. One first-mover advantage is the ability to preempt
rivals and capture demand by establishing a strong brand name. A second
advantage is the ability to build sales volume in that country and ride down
the experience curve ahead of rivals, giving the early entrant a cost
advantage over later entrants. A third advantage is the ability of early
entrants to create switching costs that tie customers into their products or
services. Such switching costs make it difficult for later entrants to win
business.
84.
Explain the relationship between first-mover disadvantages and pioneering
costs.
When a firm enters a market prior to other international businesses, it can
have first-mover disadvantages. These disadvantages may give rise to
pioneering costs, costs that an early entrant has to bear that a later entrant
can avoid. Pioneering costs arise when the business system in a foreign
country is so different from that in a firm’s home market that the enterprise
has to devote considerable effort, time, and expense to learning the rules of
the game. Pioneering costs also include the costs of promoting and
establishing a product offering. Finally, an early entrant may be put at a
disadvantage, relative to a later entrant, if regulations change in a way that
diminishes the value of the early entrant’s investments.
85.
Discuss the trade-offs associated with large-scale entry versus small-scale
entry.
It is important for a firm to think through the implications of large-scale
entry into a market and act accordingly. Of particular relevance is trying to
identify how actual and potential competitors might react to large-scale
entry into a market. Also, 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.
Balanced against the value and risks of the commitments associated with
large-scale entry are the benefits of a small-scale entry. Small-scale entry
allows a firm to learn about a foreign market while limiting the firm’s
exposure to that market. Small-scale entry is a way to gather information
about a foreign market before deciding whether to enter on a significant
scale and how best to enter. By giving the firm time to collect information,
small-scale entry reduces the risks associated with a subsequent large-
86.
Discuss Bartlett and Ghoshal’s perspective on how firms from developing
countries should approach international expansion.
Bartlett and Ghoshal suggest that companies based in developing countries
should use the entry of foreign multinationals as an opportunity to learn
from these competitors by benchmarking their operations and performance
against them. They argue that the local company might be able to find ways
to differentiate itself from foreign companies by focusing on market niches
that the multinational ignores or is unable to serve effectively if it has a
standardized global product offering. Then, the firm from the developing
nation may then be in a position to pursue its own international expansion
strategy.
87.
Why should a firm choose exporting as a means of foreign market
expansion? Discuss the advantages and disadvantages of exporting.
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.
However, there are several disadvantages of exporting. First, exporting may
not be appropriate if lower-cost manufacturing locations are available
abroad. Second, high transportation costs may make exporting
uneconomical. Finally, tariff barriers may make exporting less attractive.
88.
Explain the idea of a turnkey project. Why should a firm use this
arrangement to expand internationally? In what industries are turnkey
arrangements most common?
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.
The know-how required to assemble and run a technologically complex
process is a valuable asset. 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. A turnkey strategy can also
be less risky than conventional FDI. In a country with unstable political and
economic environments, a longer-term investment might expose a firm to
unacceptable political or economic risks.
Turnkey projects are most common in the chemical, pharmaceutical,
petroleum refining, and metal refining industries.
89.
Define licensing agreements. What are the advantages of this mode of
international expansion?
A licensing agreement is an arrangement whereby a licensor grants the
rights to intangible property to another entity for a specified period in
exchange for royalties.
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.
As a result, licensing is a very attractive option for firms that lack the capital
to open overseas markets. Licensing is also an attractive option when a firm
is interested in pursuing a foreign market but does not want to commit
substantial resources to an unfamiliar or potentially volatile foreign market.
Licensing is also used when a firm wishes to participate in a foreign market,
but is prohibited from doing so by barriers to investment. Finally, licensing is
used when a firm possesses some intangible property but does not want to
pursue a potential application itself.
90.
Why should a firm be cautious about entering a licensing agreement?
In a licensing agreement, the licensor grants the rights to intangible
property to the licensee for a specified period in exchange for royalty
payments. Firms considering this type of arrangement should be cautious
on three fronts. First, if a firm licenses any of its proprietary know-how
(such as its production processes) to another company, it risks losing
control over this knowledge by permitting access to it by another firm.
Second, licensing is not an effective way of realizing experience curve and
location economies by manufacturing a product in a centralized location. If
these attributes are important to a firm, licensing may be a poor choice.
Finally, competing in a global market may require a firm to coordinate
strategic moves across countries by using profits from one country to
support competitive attacks in another. Licensing severely limits a firm’s
91.
What is intangible property? How can intangible property be protected in a
licensing agreement?
Intangible property includes patents, inventions, formulas, processes,
designs, copyrights, and trademarks.
A licensor can reduce the risk of losing intangible property, or proprietary
know-how, to a foreign partner by entering into a cross-licensing
agreement. Under a cross-license agreement, a firm licenses some valuable
intangible property (such as a production process) to a foreign partner, but
in addition to royalty payments, the firm also requires the foreign partner to
license some of its valuable know-how to the firm. Cross-licensing
agreements enable firms to hold each other “hostage,” thereby reducing the
risk they will behave in an opportunistic manner toward each other.