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Chapter 13 - Entry Modes
Answers to End of Chapter Questions
1. If a company wanted to be a pioneer for entering a market, what conditions might increase the
likelihood of success? If the company wanted to instead be a fast follower, what would be different
in terms of the conditions that would increase the likelihood of the company’s successful entry?
A market pioneer firm stands the best chance for long-term success in market-share leadership and
2. What are the methods by which a firm can enter foreign markets?
Methods of foreign market entry depend on a wide range of factors including by not limited to the
3. Why might a company want to engage in exporting?
1.1.1 Exporting requires little investment, is relatively free of risks, and can be an excellent means
of getting a feel for international business without committing great amounts of resources.
4. What is indirect exporting, and how does it differ from direct exporting? What are the main
types of indirect exporting, and what are the primary strengths and weaknesses of each type?
When a company makes the decision to export, management must choose between indirect and direct
5. What are the distribution options that a direct exporter can use, and what are the primary
strenghts and weaknesses of each type?
If a firm chooses to do its own exporting but not directly handle distribution in the market it is exporting
to, it has four basic options for overseas middlemen:
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Chapter 13 - Entry Modes
6. What entry mode do fashion designers such as Pierre Cardin, and some high-tech firms like
Texas Instruments, share in common? Why might this be an attractive option for entering foreign
markets?
The commonly shared approach is licensing. This is a way to get the product into the foreign market,
7. Under what circumstances might piracy be beneficial to an exporter?
Piracy may help to raise awareness of a product which is new or at least unfamiliar to customers in a
8. Why would a global firm or multinational require that a wholly owned foreign subsidiary sign a
management contract when it already owns the subsidiary?
Management contract fees are usually tax-deductible expense for the foreign subsidiary so they are a
9. Under what conditions might a company prefer a joint venture to a wholly owned subsidiary
when making a foreign investment?
At times, management has no choice but to enter a market with a joint venture the host government may
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Chapter 13 - Entry Modes
10. How can a company control a joint venture if it only has a minority share of the equity?
It may be able to use such options as management contracts, supermajority voting requirements,
11. What is the difference, if any, between a joint venture and a strategic alliance?
A joint venture is a cooperative effort among two or more organizations that share a common interest in a
2 GlobalEDGE Answers
Exercise One
1. Entrepreneur magazine annually publishes a ranking of America’s top 200 franchisers seeking
international franchisees. Provide a list of the top 10 companies that pursue franchising as a mode
of international expansion. Study one of these companies in detail and provide a description of its
business model, its international expansion pattern, the qualifications it looks for in its
franchisees, and the type of support and training it provides.
Answer:
http://globaledge.msu.edu
Exercise Two
2. You are working for a computer manufacturer that is planning to set up an assembly unit in
Uruguay to serve the region. Since this would involve importing parts from other countries and
then exporting the finished products throughout Latin America, top management has requested
information on the trading practices of Uruguay. In particular, these managers want to know: 1)
the average time to clear both imports and direct exports through Customs; 2) the percentage of
losses from direct export due to theft, as well as, breakage; and 3) the percentage of firms
identifying Customs and trade regulations as a major constraint. Using Enterprise Surveys, a site
provided by the World Bank, that measures business perceptions of the investment climate,
prepare a brief executive report summarizing your findings. How does Uruguay compare to other
countries in Latin America on these measures?
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Chapter 13 - Entry Modes
Answer:
http://globaledge.msu.edu
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