Chapter 8: Expansion Strategies and Entry Mode Selection
TRUE/FALSE
1. Managers of small and medium enterprises and managers of multinational firm managers alike must
evaluate the costs of delivering their products and services to their target markets.
2. Hourly compensation costs for production workers in manufacturing in the United States are among
the highest in the world.
3. Due to the high costs of the labor force, Singapore and Korea are becoming less attractive labor
markets.
4. Hourly compensation costs for production workers in manufacturing in Denmark and Germany are
higher than those for workers in the United States.
5. Hourly compensation costs for production workers in manufacturing in Mexico are among the lowest
in the world.
6. In general, companies tend to use licensing in their first attempt to expand internationally.
7. Direct exporting means that the company sells its products to intermediaries in the company’s home
country who, in turn, sell the product overseas.
8. “Mother henning” is the same thing as “piggybacking.”
9. Using indirect exporting does not require market expertise.
10. Indirect exporting indicates that the company is not committed to the market.
11. Companies engaging in direct exporting have their own in-house exporting expertise.
12. Licensing presents less risk to the company than exporting, but it also offers less control than
exporting.
13. When quality cannot be guaranteed, it is preferable for the products produced under license not to
carry the licensor’s brand name.
14. An advantage of licensing is that it prevents licensees from becoming potential competitors.
15. Licensing is a principal entry mode for the service industry.
16. Starbuck’s is targeting Austria’s coffee houses. Even though the country has a high proportion of
smokers, Starbuck’s is unwilling to relax its global nonsmoking policy.
17. A disadvantage of franchising is that can create future competitors.
18. Joint ventures are a preferred international entry mode for emerging markets.
19. Companies frequently have a state-owned enterprise as a joint-venture partner.
20. Transfer pricing is a policy that a government may implement to encourage a company to keep its
profits within the country’s borders.
21. Overall, 70% of all joint ventures break up within 2.5 years.
22. Even weather patterns could lead to the failure of a joint venture.
23. Unlike franchising, joint venture partners are unlikely to turn into competitors.
24. Airbus is an example of a wholly-owned subsidiary operating in Europe.
25. Companies can avoid some of the disadvantages posed by partnering with other firms by setting up
wholly-owned subsidiaries in the target markets.
26. Greenfielding is the process of exporting a company’s product to a country to which it has not
previously exported.
27. The primary difference between a subsidiary and a branch office is that subsidiaries are separate
entities, while branch offices are entities that are part of the international company.
28. Branch offices carry the greatest level of risk.
29. All joint ventures and licensing agreements are considered to be strategic alliances between companies
attempting to reach joint corporate and market-related goals.
30. Most of current outsourcing activity is handled using internal staff and resources.
31. Outsourcing has been around since about the year 2000.
32. Outsourcing involves strategic alliances.
33. Outsourcing is especially popular in the areas of customer service and billing.
34. An area that has emerged as the outsourcing hub and back office of the Western world is South
America.
35. Outsourcing is an example of joint venture.
36. Outsourcing is typically handled by internal staff.
MULTIPLE CHOICE
1. Which of the countries below has the highest hourly compensation costs for producing workers in
manufacturing?
a.
Australia
c.
United States
b.
Italy
d.
Israel
2. Which order of entry mode below is ordered from low to high risk?
a.
Licensing, direct exporting, joint ventures, wholly-owned subsidiaries
b.
Indirect exporting, licensing, joint ventures, wholly-owned subsidiaries.
c.
Indirect exporting, franchising, direct exporting, branch offices.
d.
Strategic alliances, branch offices, franchising, licensing.
3. Which order of entry mode below is ordered from low to high control?
a.
Licensing, direct exporting, joint ventures, wholly-owned subsidiaries
b.
Indirect exporting, licensing, joint ventures, wholly-owned subsidiaries.
c.
Indirect exporting, franchising, direct exporting, branch offices.
d.
Strategic alliances, branch offices, franchising, licensing.
4. Which entry mode below presents the lowest risk?
a.
Licensing,
c.
Franchising
b.
Indirect exporting
d.
Wholly-owned subsidiary
5. Which entry mode below presents the highest control?
a.
Licensing,
c.
Franchising
b.
Indirect exporting
d.
Wholly-owned subsidiary
6. Which entry mode below offers the lowest control?
a.
Licensing,
c.
Franchising
b.
Indirect exporting
d.
Wholly-owned subsidiary
7. Which of the following is not likely to be used by an indirect exporter?
a.
Merchant middlemen
c.
Agents/brokers
b.
Trading companies
d.
Export management companies
8. Which of the following is not a form of cooperative exporting?
a.
Piggybacking
b.
Mother henning
c.
Leap frogging
d.
All of the above are forms of cooperative exporting.
9. Which statement is false regarding indirect exporting?
a.
Indirect exporting does not require market expertise.
b.
Indirect exporting does not require a long-term commitment.
c.
The company’s risk is minimal in indirect exporting.
d.
Indirect exporting indicates that the firm is not committed to the market.
10. Which of the following is NOT true with regard to indirect exporting
a.
It does not require market expertise
b.
It does not require a long-term commitment
c.
It creates only minimal risk for the company
d.
All of the above are true about indirect exporting
11. Cooperative exporting is also known as
a.
Piggybacking
c.
a and b
b.
Motherhenning
d.
None of the above
12. Which of the following is most likely to be used by a firm engaged in direct exporting?
a.
Trading companies
c.
Export management companies
b.
Freight forwarders
d.
Agents/brokers
13. Lands End is an example of a company that has expanded internationally through
a.
exporting.
c.
licensing.
b.
franchising.
d.
joint ventures.
14. When a licensee cannot guarantee the product’s quality it is preferable for the licensor to
a.
export to the market.
c.
license without the brand name.
b.
license with the brand name.
d.
create a joint venture.
15. Which of the following is not true regarding licensing?
a.
Licensing is a principal entry mode for the service industry.
b.
Licensing permits the company access to closed markets.
c.
Licensing may produce a viable competitor in the licensee.
d.
All of the above are true.
16. Which of the following is true regarding Franchising?
a.
Franchising is a principal entry mode for the service industry.
b.
The franchisor provides the franchisee with advertising and sales promotion support.
c.
The franchisee receives the right to use the franchisor’s brand name and all related
trademarks.
d.
All of the above are true.
17. Regarding the advantages and disadvantages of franchising, the international marketer knows that
a.
in international markets, the franchisor experiences greater risk than if it opened its own
company store.
b.
through franchising agreements, the franchisor reduces the possibility of competition.
c.
franchising is a method that allows for very rapid market penetration.
d.
All of the above are true.
18. Which statement is false regarding joint ventures?
a.
Joint ventures are a preferred international entry mode for emerging markets.
b.
When a joint venture has a state-owned enterprise as a partner it is assured instant local
access.
c.
It is typical for joint ventures to take place between an international firm and a
state-owned enterprise.
d.
Joint ventures are frequently discouraged by local governments because of the
monopoly-like power that they wield.