Chapter 06: International Market Entry
TRUE/FALSE
1. The impact of increased market share can affect a firm in several ways, including offering new sales
when the firm’s existing market is saturated.
2. In perfectly efficient markets, there are no at-par profits.
3. A firm may internationalize as part of an effort to manage its value chain effectively, particularly with
respect to minimizing costs.
4. Trade barriers in the form of tariffs have increased significantly in recent years.
5. Non-tariff trade barriers are barriers to free trade that take a form other than tariffs.
6. Importing is still the dominant type of international activity for many firms because it requires the least
investment overseas.
7. Mergers typically involve more risk and costs but less than alliances.
8. The most immediate way to internationalize a firm is to directly export goods to a market outside the
home country.
9. The least formal method by which to enter an international market is an informal alliance.
10. In a licensing arrangement, there is an alliance between two firms but it tends to be much more
coordinated than in a franchise.
11. A joint venture commonly has detailed agreements covering what each party is to provide, what each
can expect, and how each is to operate within the joint venture.
12. A franchisee will normally develop accounting and finance applications for the franchisor to use, and
assist in marketing and promotion.
13. Mergers and acquisitions are not mere linkages between firms—they create permanent changes to the
structure of the firms involved.
14. The keys to success for a greenfield venture are ready-made applications that allow the firm to start
doing business immediately.
15. Once a firm makes a major investment in capital assets, its ability to leave is reduced, as is its
negotiation ability.
16. Most firms based in large continental markets, such as the U.S. or Brazil, will focus on the domestic
market and pursue international sales.
17. Typically, as sales increase, a firm will next try to import goods through an alliance, such as a joint
venture.
18. In a transnational firm, the business assets are highly specialized, but interdependent with the other
assets of the firm.
19. A born global firm builds an understanding of international markets over time.
20. Success in market entry is often the result of the process pursued, rather than whether the strategy was
correct.
21. All nations require the permission of the governments if there are layoffs due to a merger or
acquisition.
22. The first firm into an area is typically referred to as a first mover.
23. Shrinkage is the loss of goods due to stealing or breakage, often in a retail store.
24. If customers have low brand loyalty and primarily are driven by product choice, a late entrant can have
a desirable position.
25. Most of the differences in the implementation of joint ventures center on the fact that the two parties
are joining together of their own free will and that within the confines of their agreement, the parties
can also leave that arrangement.
MULTIPLE CHOICE
1. Efforts between nations to have the same code of standards for products and how they are treated in
regards to tariffs is called:
a.
harmonization.
b.
objective setting.
c.
restructuring.
d.
evaluation and control.
2. _____ are goods that may have most of the value added in one country but due to trade barriers the
product is shipped to another country where final production on the good occurs, with the good then
being listed as an export from that country.
a.
Indirect exports
b.
Indirect imports
c.
Direct imports
d.
Direct exports
3. The shipping of a good from the home market to markets outside the home country is called:
a.
licensing.
b.
a greenfield venture.
c.
exporting.
d.
an informal alliance.
4. Which of the following requires the least investment overseas?
a.
A greenfield venture
b.
Licensing
c.
Informal alliance
d.
Exporting
5. Typically, _____ begins when there are direct sales and the firm is directly contacted by customers.
a.
exporting
b.
licensing
c.
franchising
d.
a joint venture
6. In a(n) _____, a firm moves into a market in association with other firms.
a.
turnkey operation
b.
alliance
c.
greenfield venture
d.
brownfield venture
7. Which of the following typically does not even have a signed document, but is simply a statement by
one firm to another?
a.
Licensing
b.
Franchising
c.
An informal alliance
d.
Importing
8. In which type of agreement does a firm agrees to pay a firm for the right to either manufacture or sell a
product?
a.
Greenfield venture
b.
Franchising
c.
Informal alliance
d.
Licensing
9. _____ are formal agreements between two or more firms where a new separate entity is created for the
purpose of producing or distributing goods and services.
a.
Joint ventures
b.
Greenfield ventures
c.
Brownfield ventures
d.
Franchises
10. Which of the following statements about a joint venture is false?
a.
Two or more firms contribute equity to form a new third organization.
b.
A joint venture agreement is typically quite short.
c.
The level of commitment and risk is considerably high.
d.
Most agreements have a finite time in which the venture exists as a going concern.
11. _____ is a type of alliance where a contract is established between the parent and the individual who
actually buys the business unit to sell a given product or conduct business under its trademark.
a.
Licensing
b.
A merger
c.
Franchising
d.
An informal alliance
12. An estimated _____ percent of U.S. retail business is conducted through franchisors.
a.
5
b.
15
c.
30
d.
40
13. Which of the following statements about franchising is true?
a.
It is a type of formal equity alliance.
b.
It begins when there are direct sales.
c.
It is the most immediate way to internationalize a firm.
d.
It typically does not even have a signed document.
14. A(n) _____ is a transaction involving two or more corporations in which only one permanent
corporation survives.
a.
franchise
b.
merger
c.
informal alliance
d.
joint venture
15. When a firm can enter the market immediately with a ready-made application that allows the firm to
start doing business immediately, it is known as a:
a.
license.
b.
franchise.
c.
turnkey operation.
d.
joint venture.
16. A firm that builds a wholly-owned subsidiary from the ground up is building a:
a.
franchise.
b.
licensing arrangement.
c.
turnkey operation.
d.
greenfield venture.
17. Which type of venture is the most difficult to pursue, but gives a firm the greatest control because it is
able to design every detail of the business?
a.
Greenfield venture
b.
Informal alliance
c.
Merger
d.
Acquisition
18. A(n) _____ is an organizational form that focuses strictly on the country in which the organization has
entered.
a.
licensing arrangement
b.
wholly-owned subsidiary
c.
turnkey operation
d.
acquisition
19. As demand increases, a firm begins to try to serve that demand and the first means is typically through:
a.
franchising.
b.
turnkey operations.
c.
licensing.
d.
joint ventures.
20. In a(n) _____ firm, the business assets are highly specialized, but interdependent with the other assets
of the firm.
a.
global
b.
international
c.
multidomestic
d.
transnational
21. Which of the following statements about born global firms is false?
a.
They build an understanding of international markets over time.
b.
The growth of born global businesses has increased in recent years.
c.
Often these are technology-focused firms.
d.
They are entrepreneurial firms that are global from their inception.
22. Which of the following statements about first movers is false?
a.
The first firm into an area is typically referred to as a first mover.
b.
Being a first mover is the only preferable position in all situations.
c.
A first mover is able to develop an understanding of a market before any other firm.
d.
A first mover may need to educate consumers about the product extensively, and this cost
is high.
23. What is the risk associated with being a first mover?
a.
If customer loyalty is very high, critical relationships may be established and a barrier to
entry into the market already established.
b.
Competition is based on cost and it may be difficult to be profitable.
c.
Costs of establishing the market are hard to recover.
d.
These industries and nations have low customer loyalty.
24. Which of the following is a benefit of early followers?
a.
They have high customer loyalty.
b.
Have a low risk due to market uncertainty.
c.
The ability to build relationships can result in a defendable competitive advantage.
d.
Can benefit from the education of the market done by the first mover.
25. Those firms that enter the market whether a nation or product market after it has become established
are:
a.
late entrants.
b.
early followers.
c.
second movers.
d.
fast followers.
ESSAY
1. How can firms gain market share by expanding internationally?
2. Write a explanatory note on informal alliances.
3. What is franchising? Explain how this alliance works.
4. What is a greenfield venture and why is it the most difficult venture to pursue?
5. Why is it better for a firm to enter a market in a small way?
6. What is a transnational firm? Mention at least one distinguishing characteristic.
7. List the key points in implementing a merger or acquisition.
ANS: