Chapter 13
Entering Foreign Markets
True / False Questions
1. A firm contemplating expansion should choose a foreign market based on an assessment of the
nation's long-run profit potential.
True
False
2. The attractiveness of a country as a potential market for an international business depends solely
on the size of its consumer market.
True
False
3. First-mover advantages refer to the advantages frequently associated with entering a market
early.
True
False
4. If an international business can offer a product that has been widely available in that market, the
value of that product to consumers is likely to be much greater than if the international business
offers a product that has not been widely available in that market.
True
False
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5. For an international firm, entering a foreign market before other international businesses does not
have any drawbacks.
True
False
6. The probability of survival decreases if an international business enters a national market after
several other foreign firms have already done so.
True
False
7. In international business, a strategic commitment has a short-term impact and is easily
reversible.
True
False
8. In international business, an early entrant to a foreign market may be at a disadvantage relative
to a later entrant, if regulations change in a way that diminishes the value of an early entrant's
investments.
True
False
9. Large-scale entry allows an international firm to learn about a foreign market while limiting the
firm's exposure to that market.
True
False
10. A risk-averse international firm that enters a foreign market on a small scale will increase its
potential losses.
True
False
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11. According to Christopher Bartlett and Sumantra Ghoshal, firms from developing countries cannot
succeed in foreign markets in the presence of other established global competitors.
True
False
12. Exporting, as a mode of entry into foreign markets, does not help a firm achieve experience curve
and location economies.
True
False
13. A drawback of exporting is that tariff barriers can make it uneconomical as a mode of entry into a
foreign market.
True
False
14. An international firm that enters into a turnkey deal has a long-term interest in the foreign
country.
True
False
15. Licensing, a mode of entry into a foreign market, gives an international firm tight control over
manufacturing, marketing, and strategy that is required for realizing experience curve and
location economies.
True
False
16. In a typical international licensing deal, a licensor puts up most of the capital necessary to get an
overseas operation going.
True
False
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
17. Under a cross-licensing agreement, a firm can either request a royalty payment or license some
valuable intangible property to a foreign partner.
True
False
18. In terms of the various modes of entry into a foreign market, franchising is employed primarily by
service firms, whereas licensing is pursued primarily by manufacturing firms.
True
False
19. Franchising, a mode of entry into a foreign market, helps firms exert greater quality control over
franchises in foreign locations.
True
False
20. The most typical joint venture is a 50/50 venture, in which there are two parties, each of which
holds a 50 percent ownership stake and contributes a team of managers to share operating
control.
True
False
21. In a joint venture, a firm benefits from a local partner's knowledge of the host country's
competitive conditions, culture, language, political systems, and business systems.
True
False
22. In international business, joint ventures with local partners face a significantly higher risk of being
subject to nationalization.
True
False
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
23. In terms of the entry modes into a foreign market, a joint venture does not give an
international firm the tight control over subsidiaries that might be required to realize experience
curve or location economies.
True
False
24. When a firm's competitive advantage is based on technological competence, a joint venture is the
preferred mode of entry into a foreign market because it reduces the risk of losing control over
that competence.
True
False
25. An advantage of a wholly owned subsidiary is that it may be required if a firm is trying to realize
location and experience curve economies.
True
False
26. Establishing a wholly owned subsidiary gives an international firm a 100 percent share in the
profits generated in a foreign market.
True
False
27. Establishing a wholly owned subsidiary is generally the cheapest method of serving a foreign
market from a capital investment standpoint.
True
False
28. If an international firm’s core competence is based on proprietary technology, entering a joint
venture might risk losing control of that technology to the joint-venture partner.
True
False
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29. An advantage of licensing and franchising is the low development costs and risks.
True
False
30. An international firm that perceives its technological advantage to be transitory and susceptive to
rapid imitation might want to license its technology to foreign firms.
True
False
31. The greater the pressures for cost reductions are, the more likely an international firm will want to
pursue some combination of exporting and wholly owned subsidiaries.
True
False
32. One of the advantages of acquisitions is that they are quick to execute.
True
False
33. When an international firm makes an acquisition in a foreign market, it acquires valuable
intangible as well as tangible assets.
True
False
34. According to David Ravenscraft and Mike Scherer's study, many acquisitions destroy rather than
create value.
True
False
35. An advantage of establishing a greenfield venture in a foreign country is that it gives the firm a
much greater ability to build the kind of subsidiary company that it wants.
True
False
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Multiple Choice Questions
36. Which of the following is true of foreign expansion?
A. The timing and scale of entry for foreign expansion are minor details in comparison with the
choice of foreign market.
B. The long-run economic benefits of doing business in a country are a function of the country's
population size.
C. All the nations in the world do not all hold the same profit potential for a firm contemplating
foreign expansion.
D. The costs and risks associated with foreign expansion are higher in economically advanced
nations.
E. Other things being equal, the benefit–cost–risk trade-off is likely to be most favorable in
politically unstable nations.
37. Which of the following is the first basic entry decision that a firm contemplating foreign expansion
must make?
A. When to enter a foreign market
B. On what scale to enter a foreign market
C. Which foreign markets to enter
D. Whether to enter a market before other firms and claim first-mover advantages
E. Whether to enter into licensing agreements or use the franchising model
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38. Which of the following is true of the factors regarding the selection of a foreign market?
A. All nation states in the world hold the same profit potential for a firm contemplating foreign
expansion.
B. The long-run economic benefits of foreign expansion are a function of factors such as the likely
future wealth of consumers.
C. Less populous nations have a higher potential for economic growth.
D. Politically unstable nations by virtue of their higher potential for growth are the best foreign
markets.
E. The attractiveness of a country as a potential market for an international business depends
only on its geographical location.
39. Which of the following is a reason why a relatively poor country may be an attractive target for
inward investment?
A. Rapid economic growth
B. Political instability
C. Currency depreciation
D. High cost of living
E. Less developed infrastructure
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40. Which of the following is true of the basic entry decisions a firm must make before a firm
contemplates foreign expansion?
A. The long-run economic benefits of doing business in a country are solely a function of the
number of consumers in the market.
B. The attractiveness of a country as a potential market for an international business depends on
balancing the benefits, costs, and risks associated with doing business in that country.
C. The costs and risks associated with doing business in a foreign country are typically higher in
economically advanced and politically stable democratic nations.
D. The benefit–cost–risk trade-off is likely to be most favorable in politically unstable countries.
E. All the nation-states in the world hold the same profit potential for a firm contemplating foreign
expansion.
41. Which of the following countries presents a favorable benefit-cost-risk trade-off scenario for
foreign expansion?
A. A country ridden by private-sector debt
B. A country with a free market system
C. A country experiencing a dramatic upsurge in inflation rates
D. A country that is heavily populated
E. A country that is less developed and politically unstable
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42. Which of the following is true of the value that an international business can create in a foreign
market?
A. If the international business offers the same type of product that indigenous competitors are
offering, then the value of that product is likely to be greater.
B. If the international business can offer a product that satisfies an unmet need, the value of that
product to consumers is likely to be lower.
C. Greater value of an international business translates into an inability to charge higher prices
and/or to build sales volume more rapidly.
D. The value that an international business can create in a foreign market depends on the
suitability of its product offering to that market and the nature of indigenous competition.
E. An international firm should not rank countries in terms of their attractiveness and long-run
profit potential because these factors are always changing.
43. Which of the following factors determine the value that an international business can create in a
foreign market?
A. Population density in the foreign market
B. Political stability of the foreign market
C. Nature of indigenous competition
D. Per capita income in the foreign market
E. Type of political system in the foreign market
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44. In international business, a product that is not widely available in a foreign market and satisfies an
unmet need:
A. is likely to have greater value.
B. will have to be priced relatively low.
C. will see a decrease in sales volume.
D. is not suited to that particular market.
E. will fail to make a profit.
45. Which of the following is true of basic entry decisions for an international firm into a foreign
market?
A. Greater value of a product in a foreign market translates into an ability to charge higher prices
and/or to build sales volume more rapidly.
B. An international firm should not rank countries in terms of their attractiveness because the
parameter can change frequently.
C. If an international business can offer a product that has not been widely available in a
foreign market and that satisfies an unmet need, the value of that product to consumers is
likely to be much lesser.
D. The costs and risks associated with doing business in a foreign country are typically lower in
less developed nations.
E. Other things being equal, the benefit–cost–risk trade-off is likely to be unfavorable in politically
stable nations that have free market systems.
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46. In which of the following situations can an international business command higher prices for a
particular product in a foreign market?
A. When the product is widely available in the foreign market
B. When sales volumes is relatively low in the foreign market
C. When the product offers greater value to customers in the foreign market
D. When the product is more suitable to other foreign markets
E. When domestic competitors are selling alternatives at reduced prices
47. In international business, the benefits frequently associated with entering a foreign market early
are known as _____.
A. pioneering costs
B. first-mover advantages
C. absolute advantages
D. bandwagon effects
E. factor endowments
48. Which of the following is an example of a first-mover advantage?
A. The ability to create switching costs that tie customers into one's products or services
B. The avoidance of pioneering costs that a later entrant into the foreign market has to bear
C. The increased probability of surviving in a foreign market
D. The opportunity to observe and learn from the mistakes of other entrants
E. The ability to let later entrants ride ahead on the experience curve
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49. First-mover disadvantages refer to:
A. disadvantages associated with entering a foreign market before other international businesses.
B. costs that a late entrant to a foreign market has to bear.
C. a direct restriction on the quantity of a good that can be imported into a country.
D. imperfections in the operation of the market mechanism.
E. disadvantages experienced by being a late entrant in a foreign market.
50. _____ refer to costs that an early entrant in a foreign market has to bear that a later entrant can
avoid.
A. Sunk costs
B. Standard costs
C. Variable costs
D. Pioneering costs
E. Opportunity costs
51. Which of the following is an example of a first-mover advantage?
A. The ability to capture demand by establishing a strong brand name
B. The avoidance of pioneering costs that a later entrant has to bear
C. The increased probability of surviving in a foreign market
D. The opportunity to observe and learn from the mistakes of later entrants
E. The ability to let later entrants ride ahead on the experience curve
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52. Which of the following is an example of a first-mover advantage?
A. The ability to build sales volume in the foreign country
B. The avoidance of pioneering costs that a later entrant has to bear
C. The increased probability of surviving in a foreign market
D. The opportunity to observe and learn from the mistakes of late entrants in the foreign market
E. The ability to allow later entrants to the foreign market ride ahead on the experience curve
53. _____ 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.
A. Sunk costs
B. Variable costs
C. Pioneering costs
D. Opportunity costs
E. Standard costs
54. The liability associated with foreign expansion is greater for foreign firms that:
A. choose to ride on an early entrant's investments.
B. use countertrade agreements.
C. enter a national market early.
D. ride down the experience curve behind their rivals.
E. avoid pioneering costs.
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55. The probability of survival for an international business increases if it:
A. enters a national market after several other foreign firms have already done so.
B. avoids the use of countertrade agreements.
C. enters a national market early.
D. enters a foreign market via turnkey projects.
E. avoids engaging in joint ventures.
56. In terms of an international firm considering foreign expansion, _____ include the costs of
promoting and establishing a product offering, and educating customers.
A. Sunk costs
B. Pioneering costs
C. Opportunity costs
D. Intangible costs
E. Standard costs
57. In international business, an advantage of being a late entrant in a foreign market is the ability
to:
A. create switching costs that tie customers into products or services.
B. capture demand by establishing a strong brand name.
C. build sales volume and ride down the experience curve before early entrants.
D. ride on an early entrant's investments in learning and customer education.
E. create a cost advantage over first-movers.
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58. Which of the following is true of strategic commitments for an international firm considering
foreign expansion?
A. They have a short-term impact.
B. They are frequently subject to change.
C. They fail to have a significant influence on business decisions.
D. They are difficult to reverse.
E. They are made on a day-to-day basis by employees at various levels in an organization.
59. Which of the following is true of the scale of entry into a foreign market for an international firm
considering foreign expansion?
A. Small-scale entrants are more likely to capture first-mover advantages.
B. Small-scale entry does not allow a firm to learn about a foreign market.
C. Large-scale entrants are more likely to capture first-mover advantages.
D. Large-scale entrants are more likely to avoid pioneering costs.
E. Small-scale entrants are more prone to risks than large-scale entrants.
60. Which of the following is a disadvantage of large-scale entry into a foreign market?
A. Decrease in a firm's exposure to the foreign market
B. Difficulty attracting customers and distributors for the product
C. Inability to build rapid market-share irrespective of the scale of entry
D. Limited product acceptance due to the avoidance of potential losses
E. Availability of fewer resources to support expansion in other desirable markets
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61. Which of the following is true of significant strategic commitments to foreign expansion made by
an international firm?
A. Significant strategic commitments of a foreign firm have little or no influence on the nature of
competition in a market.
B. The large-scale entry of a foreign firm does not give other foreign institutions considering entry
into the market a reason to pause.
C. The large-scale entry of a foreign firm gives customers reasons for believing that the foreign
firm will not remain in the market for the long run.
D. Significant strategic commitments are associated with higher strategic flexibility of the
international firm.
E. Significant strategic commitments are neither unambiguously good nor bad.
62. Which of the following types of entry into a foreign market allows a firm to learn about the foreign
market while limiting the firm's exposure to that market?
A. Early entry
B. Small-scale entry
C. Large-scale entry
D. Late entry
E. Rapid entry
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63. Which of the following is a disadvantage of small-scale entry for an international firm considering
foreign expansion?
A. The possibility of escalating commitment leading to major financial losses
B. The limited availability of resources for use in other markets
C. The lack of flexibility associated with strategic commitments
D. The increase in economic exposure due to minimal time spent in evaluating a foreign market
E. The difficulty of building market share and capturing first-mover advantages
64. Which of the following is the reason why small-scale entry into a foreign market makes it difficult
to build market share?
A. Small-scale entry necessitates rapid entry into a foreign market.
B. Small-scale entry is associated with a lack of commitment demonstrated by the foreign firm.
C. Small-scale entry leads to escalating strategic commitments.
D. Small-scale entry requires that extra time be spent in analyzing a foreign market.
E. Small-scale entry leads to increased exposure to a foreign market.
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65. Which of the following is true of market entry by an international firm considering foreign
expansion?
A. Politically unstable nations, by virtue of their higher potential for growth, are the best foreign
markets.
B. The value an international business can create in a foreign market does not depend on the
nature of indigenous competition.
C. The avoidance of pioneering costs that a later entrant has to bear is a first-mover advantage.
D. Strategic commitments have minor influence on business decisions.
E. Entering a large developing nation before most other international businesses on a large scale
is associated with high levels of risk.
66. Which of the following is the most likely outcome of a foreign firm entering a developed nation on
a small scale after other international businesses in the firm's industry?
A. Capturing first-mover advantages
B. Higher pioneering costs
C. Rapid increase in market share
D. Limited future growth potential
E. Increase in sales volume
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67. Which of the following is a course of action suggested by Christopher Bartlett and Sumantra
Ghoshal for companies based in developing nations?
A. Build up financial resources to match those of the largest global competitors.
B. Enter foreign markets at a similar time and scale as multinational companies.
C. Enter markets rapidly and exit at an equally rapid pace to avoid heavy losses.
D. Benchmark one's operations and performance against foreign multinationals.
E. Do not focus on market niches that multinational companies ignore.
68. Which of the following is an advantage of exporting as a mode of entry into foreign markets?
A. A firm can avoid the cost of establishing manufacturing operations in the host country.
B. A firm does not have to bear the development costs and risks associated with opening a
foreign market.
C. A firm can earn returns from process technology skills in countries where FDI is restricted.
D. A firm has access to local partner’s knowledge.
E. A firm has the ability to engage in global strategic coordination.
69. Which of the following is an advantage of exporting as a mode of entry into foreign markets?
A. It helps a firm achieve experience curve and location economies.
B. A firm does not have to bear the development costs and risks associated with opening a
foreign market.
C. A firm has the ability to engage in global strategic coordination.
D. It helps the firm earn returns from process technology skills in countries where FDI is
restricted.
E. It can provide the firm access to the local partner’s knowledge.
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70. Which of the following is a disadvantage of exporting as a mode of entry into foreign markets?
A. The exporting firm incurs the costs of establishing manufacturing operations in the host
country.
B. The firm is unable to realize curve economies through exporting.
C. High transport costs can make exporting uneconomical, particularly for bulk products.
D. The firm cannot use countertrading options when exporting.
E. A firm may not realize substantial scale economies from its global sales volume via exporting.
71. Which of the following is a disadvantage of exporting as a mode of entry into foreign markets?
A. The firm incurs the costs of establishing manufacturing operations in the host country.
B. The firm is unable to realize experience curve economies through exporting.
C. The local agents may not market the firm's products as well as the firm would if it managed its
marketing itself.
D. The firm cannot use countertrading options when exporting.
E. The firm may not realize substantial scale economies from its global sales volume via
exporting.
72. In exporting, problems with local marketing agents can be overcome by:
A. selling intangible property to a franchisee and insisting on rules to conduct the business.
B. changing agents frequently.
C. engaging in turnkey projects and exporting process technology to foreign firms.
D. entering into cross-licensing agreements with foreign firms.
E. setting up wholly owned subsidiaries in foreign nations to handle local marketing.
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73. In a _____, a mode of entry into foreign markets, a firm agrees to set up an operating plant for a
foreign client and hand over the plant when it is fully operational.
A. franchising agreement
B. turnkey project
C. licensing agreement
D. wholly owned subsidiary
E. joint venture
74. In the context of modes of entry into foreign markets, turnkey projects are a means of:
A. granting rights to intangible property to other firms.
B. establishing firms that are jointly owned by two or more otherwise independent firms.
C. exporting process technology to other countries.
D. setting up wholly owned subsidiaries in foreign nations.
E. selling products produced in one country to residents of other countries.
75. Which of the following is an advantage of turnkey projects as a mode of entry into foreign
markets?
A. It is an ideal way to gain entry into a country where FDI is not limited by government
regulations.
B. It is a useful strategy to earn great returns from the know-how of a technologically complex
process.
C. It is an ideal way to establish a firm's long-term presence in a foreign country.
D. It helps protect a firm's competitive advantage.
E. The firm that enters into a turnkey project with a foreign enterprise avoids giving rise
to potential competitors.
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76. Which of the following is an advantage of turnkey projects as a mode of entry into foreign
markets?
A. It helps create competition which in turn increases the quality of production.
B. It can be less risky than conventional FDI.
C. It is an ideal way to establish a long-term presence in a foreign country.
D. It helps protect the competitive advantage of process technology.
E. The firm that enters into a turnkey project with a foreign enterprise avoids giving rise
to potential competitors.
77. A drawback of a(n) _____, a mode of entry into foreign markets, is that the firm that uses this
strategy will have no long-term interest in a foreign country.
A. joint venture
B. greenfield venture
C. acquisition
D. turnkey deal
E. franchising agreement
78. Turnkey projects being short-term propositions can be disadvantageous for a firm if a country
subsequently proves to be a major market for the output of the process that has been exported.
The firm can get around this problem by:
A. selling competitive advantage to competitors.
B. competing with the local firm in the global market.
C. taking a minority equity interest in the operation.
D. withholding vital process technology from the local firm.
E. establishing a joint venture with a local firm.
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79. In a(n) _____,a mode of entry into foreign markets, a firm grants the rights to intangible property to
another firm for a specified period, and in return, receives a royalty fee.
A. licensing agreement
B. turnkey project
C. acquisition
D. joint venture
E. wholly owned subsidiary
80. Which of the following is true of licensing as a mode of entry into foreign markets?
A. A licensor grants the rights to tangible property to a licensee.
B. A licensing agreement grants rights to intangible property to a licensee for an unspecified
period.
C. The licensor receives a royalty fee from the licensee.
D. The licensor puts up all of the capital necessary to start a business.
E. The licensor maintains control over its technological know-how.
81. In terms of licensing, which of the following is an intangible property?
A. Infrastructure
B. Machinery
C. Leased equipment
D. Advanced computing systems
E. Patent
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82. Which of the following is true of licensing as a mode of entry into foreign markets?
A. The licensor grants the rights to tangible property to a licensee.
B. A licensing agreement grants rights to intangible property to a licensee for an unspecified
period.
C. The licensee puts up most of the capital necessary to get the overseas operation operational.
D. The licensor bears the development costs and risks associated with opening a foreign market.
E. A licensing agreement allows a licensor to maintain control over its technological know-how.
83. Which of the following is an advantage of licensing as a mode of entry into foreign markets?
A. It helps a firm to realize substantial experience curve and location economies.
B. It gives the firm tight control over manufacturing, marketing, and strategy.
C. The licensor does not have to bear the development costs and risks associated with opening a
foreign market.
D. Firms can easily maintain control over how their technological know-how is used by a licensee.
E. Licensing allows a foreign firm to use profits earned in one country to support competitive
attacks in another.
84. Which of the following is a drawback of licensing as a mode of entry into foreign markets?
A. The licensor has to bear all costs and risks associated with developing a foreign market.
B. Licensing does not give a firm tight control over manufacturing, marketing, and strategy.
C. Licensing does not benefit firms lacking the capital to expand operations overseas.
D. Licensing deals fail when there are barriers to foreign investment in a particular country.
E. A firm that enters into a licensing deal with a foreign country will have no long-term interest in
that country.
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85. 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. open source licensing
B. non-exclusive licensing
C. cross-licensing
D. exclusive licensing
E. reciprocal licensing
86. _____ with a foreign firm are believed to reduce the risks associated with licensing technological
know-how.
A. Compulsory licensing agreements
B. Reciprocal licensing agreements
C. Open source licensing agreements
D. Cross-licensing agreements
E. Exclusive licensing agreements
87. Which of the following is an example of an industry in which cross-licensing agreements are
increasingly becoming common?
A. Glass-blowing
B. Biotechnology
C. Organic farming
D. Basketry
E. Weaving
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88. _____, a mode of entry into foreign markets, enable firms to hold each other hostage, which
reduces the probability that they will behave opportunistically toward each other.
A. Cross-licensing agreements
B. Turnkey projects
C. Joint ventures
D. Greenfield ventures
E. Wholly owned subsidiaries
89. Which of following is true of franchising as a mode of entry into foreign markets?
A. The franchiser insists that the franchisee agree to abide by strict rules as to how it does
business.
B. The franchiser incurs all costs related to starting operations in a foreign market.
C. Franchising is employed primarily by manufacturing firms.
D. Franchising allows firms to take profits from one country to support competitive attacks in
another.
E. A significant advantage of franchising is quality control.
90. Franchising, a mode of entry into foreign markets, is employed primarily by _____ firms.
A. service
B. manufacturing
C. online
D. high-technology
E. primary
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91. Which of the following is an advantage of franchising as a mode of entry into foreign markets?
A. The franchiser is relieved of many of the costs and risks of opening a foreign market on its
own.
B. The franchiser is allowed to take profits out of one country to support competitive attacks in
another.
C. The franchiser can easily maintain uniform quality across many geographically dispersed
franchisees.
D. Manufacturing concerns can be effectively coordinated across adjacent processes.
E. The franchiser can support its short-term interests in a country with an unstable economy.
92. Which of the following is a disadvantage of franchising as a mode of entry into foreign markets?
A. The franchiser has to bear development costs and risks associated with foreign expansion.
B. Franchising leads to undesirable results for service firms.
C. It is difficult to maintain quality control across foreign franchisees that are distant from the
franchiser.
D. The franchiser has no long-term interests in the foreign country.
E. It forces a franchiser to take out profits from one country to support competitive attacks in
another.
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93. Which of the following is a disadvantage of franchising as a mode of entry into foreign markets?
A. The franchiser has to bear development costs and risks associated with foreign expansion.
B. While franchising offers an ideal entry mode for manufacturing firms, it often leads to
undesirable results for service firms.
C. Poor quality standards of a foreign franchisee can cause a decline in the franchising firm's
worldwide reputation.
D. The franchiser has no incentive to sustain a long-term interest in the foreign country.
E. Franchising often forces a franchiser to take out profits from one country to support competitive
attacks in another.
94. Which of the following can be used to overcome quality control problems associated with
franchising as a mode of entry into foreign markets?
A. Licensing agreements
B. Subsidiaries
C. Turnkey projects
D. Export licenses
E. Cross-licensing agreements
95. A _____, a mode of entry into foreign markets, entails establishing a firm that is collectively owned
by two or more otherwise independent firms.
A. licensing agreement
B. wholly owned subsidiary
C. franchising agreement
D. joint venture
E. greenfield investment
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96. A joint venture in which both parties hold equal ownership stakes is known as a(n) _____.
A. offshore joint venture
B. 50/50 joint venture
C. 25/75 joint venture
D. marketing joint venture
E. fully integrated joint venture
97. Which of the following is an advantage of joint ventures as a mode of entry into foreign markets?
A. The foreign firm benefits from a local partner's knowledge of the host country.
B. The foreign firm can protect its technology from being appropriated by its local partner.
C. There is less cause for friction and conflict between the foreign and local partners.
D. It gives a firm tight control over subsidiaries that which enable it to realize experience curve or
location economies.
E. The foreign firm does not have to bear any development costs and risks associated with
opening a foreign market.
98. Which of the following is a disadvantage of joint ventures as a mode of entry into foreign
markets?
A. Joint ventures with local partners face a high risk of being subjected to adverse government
interference.
B. Firms engaged in joint ventures have short-term commitments in the foreign market.
C. Joint ventures do not give a firm tight control over subsidiaries that it might need to realize
experience curve or location economies.
D. In many countries, political considerations make joint ventures impractical as an entry mode.
E. Quality control problems arise due to lack of interest of local partners.
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99. Which of the following is a disadvantage of joint ventures as a mode of entry into foreign
markets?
A. Joint ventures with local partners face a high risk of being subjected to government
interference.
B. Joint ventures can lead to conflicts and battles for control between the investing firms.
C. Firms engaged in joint ventures have short-term commitments in the foreign market.
D. In many countries, political considerations make joint ventures impractical as an entry mode.
E. The foreign firm cannot rely on its local partner for unbiased information about the host
country.
100.Which of the following is an advantage of joint ventures as a mode of entry into foreign
markets?
A. A foreign firm shares the costs and risks of development with its local partner.
B. A foreign firm can easily maintain control over how its technological know-how is used by a
local partner.
C. There is less cause for friction and conflict between partners involved in a joint venture.
D. Joint ventures are ideal to maintain tight control over subsidiaries.
E. Joint ventures benefit firms lacking the capital to expand operations overseas.
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101.Which of the following is a way in which a wholly owned subsidiary may be established in a
foreign market?
A. Through a turnkey operation with a local partner
B. Through franchising
C. By acquiring an established firm in the host nation
D. By exporting
E. Through a licensing agreement
102.Establishing a _____ gives international firms a 100 percent share in the profits generated in a
foreign market.
A. franchising agreement
B. licensing deal
C. joint venture
D. wholly owned subsidiary
E. turnkey project
103.Which of the following entry modes into a foreign market best serves a high-tech firm?
A. Turnkey projects
B. Franchising
C. Wholly owned subsidiaries
D. Joint ventures
E. Exporting
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104.Which of the following is an advantage of wholly owned subsidiaries as a mode of entry into
foreign markets?
A. A foreign firm is relieved of many of the costs and risks associated with opening a foreign
market on its own.
B. The risk of losing control over a firm's technological competence is reduced.
C. A foreign firm is insulated completely from the threat posed by high transport costs.
D. It is the most politically acceptable mode of entry into foreign markets.
E. It helps create competition which in turn increases the quality of production.
105.Which of the following is generally the most costly form of serving a foreign market from a capital
investment standpoint?
A. Joint venture
B. Licensing
C. Franchising
D. Wholly owned subsidiary
E. Exporting
106.Which of the following is a disadvantage of wholly owned subsidiaries as a mode of entry into
foreign markets?
A. Foreign firms find it difficult to maintain control over how their technological know-how is used.
B. Foreign firms cannot use profits earned in one country to support competitive attacks in
another.
C. Foreign firms tend to have short-term commitments in the foreign market.
D. Foreign firms cannot realize substantial experience curve and location economies.
E. Foreign firms must bear the full capital costs and risks of setting up overseas operations.
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107.Which of the following modes of entry into foreign markets has the distinct advantages of
protection of technology, the ability to engage in global strategic coordination, and the ability to
realize location and experience curve economies?
A. Franchising
B. Wholly owned subsidiaries
C. Joint ventures
D. Licensing
E. Exporting
108.Which of the following is true of international firms considering foreign expansion?
A. The timing and scale of entry of foreign expansion are minor details in comparison with the
choice of foreign market.
B. The long-run economic benefits of doing business in a country are solely a function of the
country's population size.
C. If the firm’s core competence is based on proprietary technology, entering a joint venture
might risk losing control of that technology to the joint-venture partner.
D. The costs and risks associated with foreign expansion are higher in economically advanced
nations.
E. Politically unstable and less developed nations offer favorable benefit-cost-risk trade-off
conditions.
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109.Which of the following modes of entry into foreign markets has the ability to realize location and
experience curve economies?
A. Turnkey projects
B. Joint ventures
C. Licensing
D. Exporting
E. Franchising
110.Which of the following modes of entry into foreign markets can result in a lack of control over
quality?
A. Exporting
B. Franchising
C. Turnkey projects
D. Wholly owned subsidiaries
E. Joint ventures
111.Which of the following modes of entry into foreign markets have the advantage of being
characterized by low development costs and risks?
A. Exporting
B. Licensing
C. A greenfield investment
D. A wholly owned subsidiary
E. A joint venture
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112.Axiom International wants to expand its operations to a country that is politically, culturally, and
economically different from its home country. The firm needs to select a mode of entry which
would give it access to local knowledge, allow sharing of development costs and risks, and also
be politically acceptable. Which of the following modes of entry into foreign markets is most
suitable for Axiom International?
A. Wholly owned subsidiary
B. Joint venture
C. Exporting
D. Greenfield investments
E. Licensing
113.Jupiter Systems is a high-tech firm looking to set up operations in a foreign country to profit from
its technological know-how which is its core competency. Which of the following modes of entry
would be most favorable to the firm if it wants to keep a tight control over its technology?
A. Wholly owned subsidiary
B. Joint venture
C. Franchising
D. Licensing
E. Turnkey project
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114.Which of the following modes of entry is suitable for service firms where the risk of losing control
over the management skills or technological know-how is not much of a concern, and where the
firms' valuable asset is their brand name?
A. Exporting
B. Franchising
C. Licensing
D. Turnkey projects
E. Cross-licensing
115.Which of the following is a disadvantage of wholly owned subsidiaries as a mode of entry into
foreign markets?
A. Lack of control over quality
B. High costs and risks
C. Problems with local marketing agents
D. Inability to engage in global strategic coordination
E. Lack of control over technology
116.A firm that expects rapid imitation of its core technology by competitors should:
A. revert to older technologies.
B. engage in exporting on a large scale.
C. license its technology to foreign firms.
D. set up a wholly owned subsidiary.
E. enter into a joint venture with a foreign firm.
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117.Why do firms pursuing global standardization or transnational strategies tend to prefer
establishing wholly owned subsidiaries?
A. It gives firms sound knowledge of the local markets, culture, and the political environment.
B. It helps protect competitive advantages based on technology.
C. It allows firms to use the profits generated in one market to improve its competitive position in
another market.
D. It is the most politically accepted mode of entry into foreign markets.
E. It has the least costs and risks associated with developing a foreign market.
118.Which of the following is an advantage of acquisitions as a means of entering foreign markets?
A. They are quick to execute and help firms to rapidly build their presence in the target foreign
market.
B. It is much easier to change the culture of an existing organization than build a new
organization.
C. It is easier to convert the operating routines of acquired units than establish routines in new
subsidiaries.
D. They give firms access to valuable intangible assets while minimizing a pileup of tangible
assets.
E. Acquired firms are often undervalued and hence assets can be purchased at minimal prices.
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119.Which of the following is an advantage of acquisitions as a means of entering foreign markets?
A. Acquiring firms often underpay for the assets of the acquired firm.
B. It enables firms to preempt their competitors.
C. After an acquisition, many acquired companies face increased recruitments.
D. Integrating the operations of the acquired and acquiring entities takes a very short time.
E. Most acquisitions are successful due to adequate pre-acquisition screening.
120.Which of the following is an advantage of an acquisition as a means of entry into foreign
markets?
A. It is much easier to change the culture of an existing organization than build a new
organization.
B. It is easier to convert the operating routines of acquired units than establish routines in new
subsidiaries.
C. It yields greater long-run returns than greenfield ventures.
D. It gives firms access to valuable intangible assets along with a set of tangible assets.
E. Acquired firms are often undervalued and hence assets can be purchased at minimal prices.
121.Which of the following postulates that top managers typically overestimate their ability to create
value from an acquisition?
A. Bandwagon effect
B. Fisher effect
C. Hubris hypothesis
D. International Fisher effect
E. Learning effect
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122.Which of the following is a reason why firms often overpay for the assets of an acquired firm?
A. Studies supporting the rise of failed companies post acquisitions
B. Evidence of high management turnover post acquisitions
C. The success rate of acquisitions exceeding that of failures
D. Interest of more than one party in acquiring a particular firm
E. Inevitable clash between cultures of acquiring and acquired firms
123.The management of an acquiring firm is often too optimistic about the value that can be created
via an acquisition and is thus willing to pay a significant premium over a target firm’s market
capitalization. This is known as the _____ and is the reason why acquisitions fail.
A. bandwagon effect
B. Fisher effect
C. hubris hypothesis
D. international Fisher effect
E. learning effect
124.Which of the following is a reason why acquisitions, a mode of entering foreign markets, fail?
A. There is a clash between the cultures of the acquiring and acquired firm.
B. Acquisitions take a long time to execute.
C. Acquisitions are easily preempted by making greenfield investments.
D. The revenue and profit stream generated by an acquisition's resources is usually unknown.
E. Losses produced by intangible assets outweigh profits from acquired tangible assets.
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125.Spring, an American firm, recently acquired another company known as Tazel Inc. in Indonesia.
The high-level managers at Tazel Inc. quit because they could not cope with the domineering
and straightforward approach of their American counterparts. This illustrates how acquisitions
may fail because:
A. managers overestimate their ability to create value from an acquisition.
B. integration of operations between the two firms takes longer than forecasted.
C. there is a clash between the cultures of the acquired and the acquiring firm.
D. an acquiring firm overpays for the assets of an acquired firm.
E. inadequate pre-acquisition screening has been done.
126.Which of the following is a way in which the risk of failure of an acquisition can be reduced?
A. By undervaluing the assets of an acquired firm
B. By ensuring that firms are acquired in the home country
C. By replacing high-level managers of an acquired firm
D. By a detailed auditing of operations, financial position, and management culture
E. By investing only in a firm that is managing to break even
127.Which of the following is an advantage of acquisitions as a means of entry into foreign markets?
A. When a firm makes an acquisition, it buys a set of assets that are producing a known revenue.
B. Acquiring firms underpay for the assets of the acquired firm.
C. After an acquisition, many acquired companies face a rise in recruitments.
D. Integrating the operations of the acquired and acquiring entities often takes a short period of
time.
E. Most acquisitions succeed due to detailed pre-acquisition screening.
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128.To reduce the risks of failure of an acquisition, managers must:
A. pay more for the acquired unit to please its existing employees.
B. encourage and facilitate management turnover.
C. acquire a firm without wasting time on screening.
D. move rapidly after an acquisition to put an integration plan in place.
E. ensure that the work cultures are significantly different from each other.
129.An advantage of a(n) _____, a mode of entry into foreign markets, is that it provides a firm with
much greater ability to build the kind of subsidiary company that it wants.
A. acquisition
B. merger
C. franchise
D. greenfield venture
E. turnkey project
130.An advantage of a(n) _____ as a mode of entry into foreign markets is that it is much easier to
build an organization culture from scratch than it is to change the culture of an acquired unit.
A. joint venture
B. greenfield venture
C. merger
D. acquisition
E. turnkey project
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131.Which of the following is a disadvantage of greenfield ventures as a mode of entry into foreign
markets?
A. They have a higher potential for throwing up unpleasant surprises.
B. It is much more difficult to build an organizational culture from scratch than to change the
culture of an existing unit.
C. Companies find it difficult to avoid falling into the trap of the hubris hypothesis.
D. It is slower to establish than acquisitions.
E. A firm does not have the freedom to build the kind of subsidiary that it wants.
132.Which of the following is a disadvantage of greenfield ventures as a mode of entering foreign
markets?
A. Greenfield ventures have a higher potential for throwing up unpleasant surprises.
B. It is much more difficult to build an organizational culture from scratch than to change the
culture of an existing unit.
C. Companies find it difficult to avoid the hubris hypothesis of acquisitions.
D. There is a possibility of being preempted by aggressive global competitors who enter via
acquisitions.
E. A firm does not have the freedom to build the kind of subsidiary that it wants.
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133.If a firm is seeking to enter a market via a wholly owned subsidiary where there are already wellestablished incumbent enterprises, and where global competitors are also interested in
establishing a presence, a(n) _____ is a suitable mode of entry.
A. acquisition
B. licensing deal
C. greenfield venture
D. turnkey project
E. exporting deal
134.If a firm is considering entering a country where incumbents exist, and if the competitive
advantage of the firm is based on the transfer of organizationally embedded competencies, skills,
routines, and culture, then a _____ is the preferable mode of entry.
A. greenfield venture
B. joint venture
C. licensing agreement
D. franchising deal
E. turnkey project
135.If a firm is considering entering a country where there are no incumbent competitors to be
acquired, then which of the following modes of entry into foreign markets is most suitable?
A. Acquisition
B. Licensing deal
C. Greenfield venture
D. Turnkey project
E. Franchising deal
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Essay Questions
136.Briefly describe the value that an international business can create in a foreign market?
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137.What is meant by first-mover advantages? Describe three first-mover advantages for
international businesses.
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138.In terms of international business, briefly describe pioneering costs.
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139.What are the consequences of an international firm entering a foreign market on a significant
scale?
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140.According to Christopher Bartlett and Sumantra Ghoshal, what strategies can a firm from a
developing country adopt to successfully enter foreign markets?
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141.What are the advantages and disadvantages of exporting as a mode of entry into foreign
markets?
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142.Describe turnkey projects as an entry mode into a foreign market.
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143.What are some of the ways in which a firm can reduce the risk of losing its proprietary know-how
to foreign companies through licensing agreements?
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144.Describe the disadvantages of licensing as a mode of entry into the foreign market.
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145.What are the advantages and disadvantages of using joint venture as a mode of entry into a
foreign market?
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146.What is meant by wholly owned subsidiary? What are the advantages of wholly owned
subsidiaries?
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147.Describe the advantages of turnkey projects as a mode of entry into a foreign market.
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148.Describe the advantages and disadvantages of acquisitions as a means of establishing a wholly
owned subsidiary.
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149.Describe the pros and cons of greenfield ventures.
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150.How should a firm choose between a greenfield venture and an acquisition?
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Chapter 13 Entering Foreign Markets Answer Key
True / False Questions
1.
A firm contemplating expansion should choose a foreign market based on an assessment of
the nation's long-run profit potential.
TRUE
The 196 nation-states in the world do not all hold the same profit potential for a firm
contemplating foreign expansion. Ultimately, the choice of a location for foreign expansion of a
firm's business must be based on an assessment of a nation's long-run profit potential.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
2.
The attractiveness of a country as a potential market for an international business depends
solely on the size of its consumer market.
FALSE
The attractiveness of a country as a potential market for an international business depends on
balancing the benefits, costs, and risks associated with doing business in that country.
AACSB: Analytic
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
3.
First-mover advantages refer to the advantages frequently associated with entering a market
early.
TRUE
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: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
4.
If an international business can offer a product that has been widely available in that market,
the value of that product to consumers is likely to be much greater than if the international
business offers a product that has not been widely available in that market.
FALSE
If an international business can offer a product that has not been widely available in that
market and that satisfies an unmet need, the value of that product to consumers is likely to be
much greater than if the international business simply offers the same type of product that
indigenous competitors and other foreign entrants are already offering.
AACSB: Analytic
13-62
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
5.
For an international firm, entering a foreign market before other international businesses does
not have any drawbacks.
FALSE
There can be disadvantages associated with entering a foreign market before other
international businesses. These are often referred to as 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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
6.
The probability of survival decreases if an international business enters a national market after
several other foreign firms have already done so.
FALSE
Research seems to confirm that the probability of survival increases if an international
business enters a national market after several other foreign firms have already done so. The
late entrant may benefit by observing and learning from the mistakes made by early entrants.
AACSB: Analytic
Blooms: Remember
13-63
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Difficulty: 1 Easy
Learning Objective: 13-01 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
7.
In international business, a strategic commitment has a short-term impact and is easily
reversible.
FALSE
For international businesses, a strategic commitment has a long-term impact and is difficult to
reverse. Deciding to enter a foreign market on a significant scale is a major strategic
commitment.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
8.
In international business, an early entrant to a foreign market may be at a disadvantage
relative to a later entrant, if regulations change in a way that diminishes the value of an early
entrant's investments.
TRUE
In international business, an early entrant to a foreign market may be put at a severe
disadvantage, relative to a later entrant, if regulations change in a way that diminishes the
value of an early entrant's investments. This is a serious risk in many developing nations
where the rules that govern business practices are still evolving.
AACSB: Analytic
Blooms: Remember
13-64
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Difficulty: 1 Easy
Learning Objective: 13-01 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
9.
Large-scale entry allows an international firm to learn about a foreign market while limiting the
firm's exposure to that market.
FALSE
Balanced against the value and risks of the commitments associated with large-scale entry of
an international firm into a foreign market 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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
10.
A risk-averse international firm that enters a foreign market on a small scale will increase its
potential losses.
FALSE
A risk-averse international firm that enters a foreign market on a small scale may limit its
potential losses, but it may also miss the chance to capture first-mover advantages.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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.
13-65
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Topic: Basic Entry Decisions
11.
According to Christopher Bartlett and Sumantra Ghoshal, firms from developing countries
cannot succeed in foreign markets in the presence of other established global competitors.
FALSE
Christopher Bartlett and Sumantra Ghoshal have pointed out the ability that businesses based
in developing nations have to enter foreign markets and become global players. Although such
firms tend to be late entrants into foreign markets, and although their resources may be
limited, Bartlett and Ghoshal argue that such late movers can still succeed against wellestablished global competitors by pursuing appropriate strategies.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
12.
Exporting, as a mode of entry into foreign markets, does not help a firm achieve experience
curve and location economies.
FALSE
Exporting may help a firm achieve experience curve and location economies. By
manufacturing the product in a centralized location and exporting it to other national markets,
the firm may realize substantial scale economies from its global sales volume.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-66
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
13.
A drawback of exporting is that tariff barriers can make it uneconomical as a mode of entry
into a foreign market.
TRUE
A drawback of exporting as a mode of entry into a foreign market is that tariff barriers can
make it uneconomical. Similarly, the threat of tariff barriers by the host-country government
can make it very risky.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
14.
An international firm that enters into a turnkey deal has a long-term interest in the foreign
country.
FALSE
An international firm that enters into a turnkey deal will have no long-term interest in the
foreign country. This can be a disadvantage if that country subsequently proves to be a major
market for the output of the process that has been exported.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-67
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
15.
Licensing, a mode of entry into a foreign market, gives an international firm tight control over
manufacturing, marketing, and strategy that is required for realizing experience curve and
location economies.
FALSE
Licensing, a mode of entry into a foreign market, does not give a firm the tight control over
manufacturing, marketing, and strategy that is required for realizing experience curve and
location economies.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
16.
In a typical international licensing deal, a licensor puts up most of the capital necessary to get
an overseas operation going.
FALSE
In a typical international licensing deal, a licensee puts up most of the capital necessary to get
an overseas operation going. Thus, a 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: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-68
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
17.
Under a cross-licensing agreement, a firm can either request a royalty payment or license
some valuable intangible property to a foreign partner.
FALSE
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: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
18.
In terms of the various modes of entry into a foreign market, franchising is employed primarily
by service firms, whereas licensing is pursued primarily by manufacturing firms.
TRUE
In terms of the various modes of entry into a foreign market, licensing is pursued primarily by
manufacturing firms, whereas franchising is employed primarily by service firms. Franchising is
similar to licensing, although franchising tends to involve longer-term commitments than
licensing.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-69
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
19.
Franchising, a mode of entry into a foreign market, helps firms exert greater quality control
over franchises in foreign locations.
FALSE
A significant disadvantage of franchising is quality control. Foreign franchisees may not be as
concerned about quality as they are supposed to be, and the result of poor quality can extend
beyond lost sales in a particular foreign market to a decline in the firm’s worldwide reputation.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
20.
The most typical joint venture is a 50/50 venture, in which there are two parties, each of which
holds a 50 percent ownership stake and contributes a team of managers to share operating
control.
TRUE
A joint venture entails establishing a firm that is jointly owned by two or more otherwise
independent firms. The most typical joint venture is a 50/50 venture, in which there are two
parties, each of which holds a 50 percent ownership stake and contributes a team of
managers to share operating control.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-70
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
21.
In a joint venture, a firm benefits from a local partner's knowledge of the host country's
competitive conditions, culture, language, political systems, and business systems.
TRUE
A joint venture entails establishing a firm that is jointly owned by two or more otherwise
independent firms. A firm in a joint venture benefits from a local partner's knowledge of the
host country's competitive conditions, culture, language, political systems, and business
systems.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
22.
In international business, joint ventures with local partners face a significantly higher risk of
being subject to nationalization.
FALSE
In many countries, political considerations make joint ventures the only feasible entry mode.
Research suggests joint ventures with local partners face a low risk of being subject to
nationalization or other forms of adverse government interference.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-71
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
23.
In terms of the entry modes into a foreign market, a joint venture does not give an
international firm the tight control over subsidiaries that might be required to realize experience
curve or location economies.
TRUE
A joint venture, a mode of entry into a foreign market, does not give an international firm the
tight control over subsidiaries that it might need to realize experience curve or location
economies. Nor does it give the firm the tight control over a foreign subsidiary that it might
need for engaging in coordinated global attacks against its rivals.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
24.
When a firm's competitive advantage is based on technological competence, a joint venture is
the preferred mode of entry into a foreign market because it reduces the risk of losing control
over that competence.
FALSE
When a firm's competitive advantage is based on technological competence, a wholly owned
subsidiary will often be the preferred entry mode because it reduces the risk of losing control
over that competence. Many high-tech firms prefer this entry mode for overseas expansion.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-72
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
25.
An advantage of a wholly owned subsidiary is that it may be required if a firm is trying to
realize location and experience curve economies.
TRUE
An advantage of a wholly owned subsidiary is that it may be required if a firm is trying to
realize location and experience curve economies (as firms pursuing global and transnational
strategies try to do).
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
26.
Establishing a wholly owned subsidiary gives an international firm a 100 percent share in the
profits generated in a foreign market.
TRUE
There are several clear advantages of wholly owned subsidiaries. Establishing a wholly owned
subsidiary gives the firm a 100 percent share in the profits generated in a foreign market.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-73
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
27.
Establishing a wholly owned subsidiary is generally the cheapest method of serving a foreign
market from a capital investment standpoint.
FALSE
Establishing a wholly owned subsidiary is generally the most costly method of serving a
foreign market from a capital investment standpoint. Firms doing this must bear the full capital
costs and risks of setting up overseas operations.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
28.
If an international firm’s core competence is based on proprietary technology, entering a joint
venture might risk losing control of that technology to the joint-venture partner.
TRUE
If an international firm’s core competence is based on proprietary technology, entering a joint
venture might risk losing control of that technology to the joint-venture partner, in which case
the strategy may seem unattractive.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode.
Topic: Selecting an Entry Mode
13-74
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
29.
An advantage of licensing and franchising is the low development costs and risks.
TRUE
According to table 13.1, an advantage of licensing and franchising is the low development
costs and risks.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode.
Topic: Selecting an Entry Mode
30.
An international firm that perceives its technological advantage to be transitory and susceptive
to rapid imitation might want to license its technology to foreign firms.
TRUE
When a firm perceives its technological advantage to be only transitory or when it expects
rapid imitation of its core technology by competitors, it might want to license its technology as
rapidly as possible to foreign firms to gain global acceptance for its technology before the
imitation occurs.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode.
Topic: Selecting an Entry Mode
13-75
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
31.
The greater the pressures for cost reductions are, the more likely an international firm will want
to pursue some combination of exporting and wholly owned subsidiaries.
TRUE
The greater the pressures for cost reductions are, the more likely a firm will want to pursue
some combination of exporting and wholly owned subsidiaries. By manufacturing in those
locations where factor conditions are optimal and then exporting to the rest of the world, a firm
may be able to realize substantial location and experience curve economies.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode.
Topic: Selecting an Entry Mode
32.
One of the advantages of acquisitions is that they are quick to execute.
TRUE
An advantage of acquisitions is that they are quick to execute. By acquiring an established
enterprise, a firm can rapidly build its presence in the target foreign market.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-76
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
33.
When an international firm makes an acquisition in a foreign market, it acquires valuable
intangible as well as tangible assets.
TRUE
When an international firm makes an acquisition in a foreign market, it not only acquires a set
of tangible assets, such as factories, logistics systems, customer service systems, and so on,
but it also acquires valuable intangible assets including a local brand name and managers'
knowledge of the business environment in that nation.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
34.
According to David Ravenscraft and Mike Scherer's study, many acquisitions destroy rather
than create value.
TRUE
In a seminal study of the post-acquisition performance of acquired companies, David
Ravenscraft and Mike Scherer concluded that, on average, the profits and market shares of
acquired companies declined following acquisition. Ravenscraft and Scherer’s evidence
suggests that many acquisitions destroy rather than create value.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-77
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
35.
An advantage of establishing a greenfield venture in a foreign country is that it gives the firm a
much greater ability to build the kind of subsidiary company that it wants.
TRUE
The big advantage of establishing a greenfield venture in a foreign country is that it gives the
firm a much greater ability to build the kind of subsidiary company that it wants. It is much
easier to build an organization culture from scratch than it is to change the culture of an
acquired unit.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
Multiple Choice Questions
13-78
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
36.
Which of the following is true of foreign expansion?
A. The timing and scale of entry for foreign expansion are minor details in comparison with
the choice of foreign market.
B. The long-run economic benefits of doing business in a country are a function of the
country's population size.
C. All the nations in the world do not all hold the same profit potential for a firm contemplating
foreign expansion.
D. The costs and risks associated with foreign expansion are higher in economically
advanced nations.
E. Other things being equal, the benefit–cost–risk trade-off is likely to be most favorable in
politically unstable nations.
A firm contemplating foreign expansion must make three basic decisions: which markets to
enter, when to enter those markets, and on what scale. The 196 nation-states in the world do
not all hold the same profit potential for a firm contemplating foreign expansion.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-79
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
37.
Which of the following is the first basic entry decision that a firm contemplating foreign
expansion must make?
A. When to enter a foreign market
B. On what scale to enter a foreign market
C. Which foreign markets to enter
D. Whether to enter a market before other firms and claim first-mover advantages
E. Whether to enter into licensing agreements or use the franchising model
A firm contemplating foreign expansion must make three basic decisions: which markets to
enter, when to enter those markets, and on what scale.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
13-80
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
38.
Which of the following is true of the factors regarding the selection of a foreign market?
A. All nation states in the world hold the same profit potential for a firm contemplating foreign
expansion.
B. The long-run economic benefits of foreign expansion are a function of factors such as the
likely future wealth of consumers.
C. Less populous nations have a higher potential for economic growth.
D. Politically unstable nations by virtue of their higher potential for growth are the best foreign
markets.
E. The attractiveness of a country as a potential market for an international business depends
only on its geographical location.
The choice of a foreign market must be based on an assessment of a nation’s long-run profit
potential. The long-run economic benefits of doing business in a country are a function of
factors such as the size of the market (in terms of demographics), the present wealth
(purchasing power) of consumers in that market, and the likely future wealth of consumers,
which depends on economic growth rates.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-81
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
39.
Which of the following is a reason why a relatively poor country may be an attractive target for
inward investment?
A. Rapid economic growth
B. Political instability
C. Currency depreciation
D. High cost of living
E. Less developed infrastructure
While some markets are very large when measured by number of consumers (e.g., China,
India, and Indonesia), one must also look at living standards and economic growth. On this
basis, China and India, while relatively poor, are growing so rapidly that they are attractive
targets for inward investment.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-82
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
40.
Which of the following is true of the basic entry decisions a firm must make before a firm
contemplates foreign expansion?
A. The long-run economic benefits of doing business in a country are solely a function of the
number of consumers in the market.
B. The attractiveness of a country as a potential market for an international business depends
on balancing the benefits, costs, and risks associated with doing business in that country.
C. The costs and risks associated with doing business in a foreign country are typically higher
in economically advanced and politically stable democratic nations.
D. The benefit–cost–risk trade-off is likely to be most favorable in politically unstable countries.
E. All the nation-states in the world hold the same profit potential for a firm contemplating
foreign expansion.
The attractiveness of a country as a potential market for an international business depends on
balancing the benefits, costs, and risks associated with doing business in that country.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-83
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
41.
Which of the following countries presents a favorable benefit-cost-risk trade-off scenario for
foreign expansion?
A. A country ridden by private-sector debt
B. A country with a free market system
C. A country experiencing a dramatic upsurge in inflation rates
D. A country that is heavily populated
E. A country that is less developed and politically unstable
The benefit-cost-risk trade-off is likely to be most favorable in politically stable developed and
developing nations that have free market systems, and where there is not a dramatic upsurge
in either inflation rates or private-sector debt.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-84
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
42.
Which of the following is true of the value that an international business can create in a foreign
market?
A. If the international business offers the same type of product that indigenous competitors
are offering, then the value of that product is likely to be greater.
B. If the international business can offer a product that satisfies an unmet need, the value of
that product to consumers is likely to be lower.
C. Greater value of an international business translates into an inability to charge higher
prices and/or to build sales volume more rapidly.
D. The value that an international business can create in a foreign market depends on the
suitability of its product offering to that market and the nature of indigenous competition.
E. An international firm should not rank countries in terms of their attractiveness and long-run
profit potential because these factors are always changing.
An important factor for a firm considering foreign expansion is the value an international
business can create in a foreign market. This depends on the suitability of its product offering
to that market and the nature of indigenous competition.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-85
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
43.
Which of the following factors determine the value that an international business can create in
a foreign market?
A. Population density in the foreign market
B. Political stability of the foreign market
C. Nature of indigenous competition
D. Per capita income in the foreign market
E. Type of political system in the foreign market
An important factor for a firm considering foreign expansion is the value an international
business can create in a foreign market. This depends on the suitability of its product offering
to that market and the nature of indigenous competition.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
13-86
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
44.
In international business, a product that is not widely available in a foreign market and satisfies
an unmet need:
A. is likely to have greater value.
B. will have to be priced relatively low.
C. will see a decrease in sales volume.
D. is not suited to that particular market.
E. will fail to make a profit.
If an international business can offer a product that has not been widely available in a market
and that satisfies an unmet need, the value of that product to consumers is likely to be much
greater than if the international business simply offers the same type of product that
indigenous competitors and other foreign entrants are already offering.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-87
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
45.
Which of the following is true of basic entry decisions for an international firm into a foreign
market?
A. Greater value of a product in a foreign market translates into an ability to charge higher
prices and/or to build sales volume more rapidly.
B. An international firm should not rank countries in terms of their attractiveness because the
parameter can change frequently.
C. If an international business can offer a product that has not been widely available in a
foreign market and that satisfies an unmet need, the value of that product to consumers is
likely to be much lesser.
D. The costs and risks associated with doing business in a foreign country are typically lower
in less developed nations.
E. Other things being equal, the benefit–cost–risk trade-off is likely to be unfavorable in
politically stable nations that have free market systems.
If an international business offers a product that is not widely available in that market and that
satisfies an unmet need, the value of that product to consumers is likely to be much greater
than if the international business simply offers the same type of product that its
competitors are already offering.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-88
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
46.
In which of the following situations can an international business command higher prices for a
particular product in a foreign market?
A. When the product is widely available in the foreign market
B. When sales volumes is relatively low in the foreign market
C. When the product offers greater value to customers in the foreign market
D. When the product is more suitable to other foreign markets
E. When domestic competitors are selling alternatives at reduced prices
The value created in a market by a company's product offering is an important factor in entry
decisions. Greater value translates into an ability to charge higher prices and/or to build sales
volume more rapidly.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-89
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
47.
In international business, the benefits frequently associated with entering a foreign market
early are known as _____.
A. pioneering costs
B. first-mover advantages
C. absolute advantages
D. bandwagon effects
E. factor endowments
The advantages frequently associated with entering a foreign 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: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
13-90
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
48.
Which of the following is an example of a first-mover advantage?
A. The ability to create switching costs that tie customers into one's products or services
B. The avoidance of pioneering costs that a later entrant into the foreign market has to bear
C. The increased probability of surviving in a foreign market
D. The opportunity to observe and learn from the mistakes of other entrants
E. The ability to let later entrants ride ahead on the experience curve
The advantages frequently associated with entering a foreign market early are commonly
known as first-mover advantages. One first-mover 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.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-91
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
49.
First-mover disadvantages refer to:
A. disadvantages associated with entering a foreign market before other international
businesses.
B. costs that a late entrant to a foreign market has to bear.
C. a direct restriction on the quantity of a good that can be imported into a country.
D. imperfections in the operation of the market mechanism.
E. disadvantages experienced by being a late entrant in a foreign market.
There can be disadvantages associated with entering a foreign market before other
international businesses. These are often referred to as 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.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-92
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
50.
_____ refer to costs that an early entrant in a foreign market has to bear that a later entrant
can avoid.
A. Sunk costs
B. Standard costs
C. Variable costs
D. Pioneering costs
E. Opportunity costs
Pioneering costs are 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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
13-93
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
51.
Which of the following is an example of a first-mover advantage?
A. The ability to capture demand by establishing a strong brand name
B. The avoidance of pioneering costs that a later entrant has to bear
C. The increased probability of surviving in a foreign market
D. The opportunity to observe and learn from the mistakes of later entrants
E. The ability to let later entrants ride ahead on the experience curve
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: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
13-94
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
52.
Which of the following is an example of a first-mover advantage?
A. The ability to build sales volume in the foreign country
B. The avoidance of pioneering costs that a later entrant has to bear
C. The increased probability of surviving in a foreign market
D. The opportunity to observe and learn from the mistakes of late entrants in the foreign
market
E. The ability to allow later entrants to the foreign market ride ahead on the experience curve
The advantages frequently associated with entering a market early are commonly known as
first-mover advantages. One first-mover advantage is the ability to build sales volume in a
country and ride down the experience curve ahead of rivals, giving the early entrant a cost
advantage over later entrants.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 13-01 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
13-95
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
53.
_____ 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.
A. Sunk costs
B. Variable costs
C. Pioneering costs
D. Opportunity costs
E. Standard costs
Pioneering costs are 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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
13-96
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
54.
The liability associated with foreign expansion is greater for foreign firms that:
A. choose to ride on an early entrant's investments.
B. use countertrade agreements.
C. enter a national market early.
D. ride down the experience curve behind their rivals.
E. avoid pioneering costs.
A certain liability is associated with being a foreigner, and this liability is greater for foreign
firms that enter a national market early. Research seems to confirm that the probability of
survival increases if an international business enters a national market after several other
foreign firms have already done so.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-97
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
55.
The probability of survival for an international business increases if it:
A. enters a national market after several other foreign firms have already done so.
B. avoids the use of countertrade agreements.
C. enters a national market early.
D. enters a foreign market via turnkey projects.
E. avoids engaging in joint ventures.
A certain liability is associated with being a foreigner, and this liability is greater for foreign
firms that enter a national market early. Research seems to confirm that the probability of
survival increases if an international business enters a national market after several other
foreign firms have already done so.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-98
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
56.
In terms of an international firm considering foreign expansion, _____ include the costs of
promoting and establishing a product offering, and educating customers.
A. Sunk costs
B. Pioneering costs
C. Opportunity costs
D. Intangible costs
E. Standard costs
Pioneering costs include the costs of promoting and establishing a product offering, including
the costs of educating customers. These can be significant when the product being promoted
is unfamiliar to local consumers.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
13-99
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
57.
In international business, an advantage of being a late entrant in a foreign market is the ability
to:
A. create switching costs that tie customers into products or services.
B. capture demand by establishing a strong brand name.
C. build sales volume and ride down the experience curve before early entrants.
D. ride on an early entrant's investments in learning and customer education.
E. create a cost advantage over first-movers.
Pioneering costs include the costs of promoting and establishing a product offering, including
the costs of educating customers. Later entrants may be able to ride on an early entrant’s
investments in learning and customer education by watching how the early entrant proceeded
in the market, by avoiding costly mistakes made by the early entrant.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-100
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
58.
Which of the following is true of strategic commitments for an international firm considering
foreign expansion?
A. They have a short-term impact.
B. They are frequently subject to change.
C. They fail to have a significant influence on business decisions.
D. They are difficult to reverse.
E. They are made on a day-to-day basis by employees at various levels in an organization.
A strategic commitment has a long-term impact and is difficult to reverse. Deciding to enter a
foreign market on a significant scale is a major strategic commitment.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-101
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
59.
Which of the following is true of the scale of entry into a foreign market for an international firm
considering foreign expansion?
A. Small-scale entrants are more likely to capture first-mover advantages.
B. Small-scale entry does not allow a firm to learn about a foreign market.
C. Large-scale entrants are more likely to capture first-mover advantages.
D. Large-scale entrants are more likely to avoid pioneering costs.
E. Small-scale entrants are more prone to risks than large-scale entrants.
In terms of an international firm considering foreign expansion, 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: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-102
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
60.
Which of the following is a disadvantage of large-scale entry into a foreign market?
A. Decrease in a firm's exposure to the foreign market
B. Difficulty attracting customers and distributors for the product
C. Inability to build rapid market-share irrespective of the scale of entry
D. Limited product acceptance due to the avoidance of potential losses
E. Availability of fewer resources to support expansion in other desirable markets
Entering a market on a large scale involves the commitment of significant resources and
implies rapid entry. On the negative side, by committing itself heavily to one market, the
company may have fewer resources available to support expansion in other desirable
markets.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-103
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
61.
Which of the following is true of significant strategic commitments to foreign expansion made
by an international firm?
A. Significant strategic commitments of a foreign firm have little or no influence on the nature
of competition in a market.
B. The large-scale entry of a foreign firm does not give other foreign institutions considering
entry into the market a reason to pause.
C. The large-scale entry of a foreign firm gives customers reasons for believing that the
foreign firm will not remain in the market for the long run.
D. Significant strategic commitments are associated with higher strategic flexibility of the
international firm.
E. Significant strategic commitments are neither unambiguously good nor bad.
Significant strategic commitments are neither unambiguously good nor bad. Rather, they tend
to change the competitive playing field and unleash a number of changes, some of which may
be desirable and some of which will not be.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-104
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
62.
Which of the following types of entry into a foreign market allows a firm to learn about the
foreign market while limiting the firm's exposure to that market?
A. Early entry
B. Small-scale entry
C. Large-scale entry
D. Late entry
E. Rapid entry
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. Small-scale entry allows a firm
to learn about a foreign market while limiting the firm's exposure to that market.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
13-105
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
63.
Which of the following is a disadvantage of small-scale entry for an international firm
considering foreign expansion?
A. The possibility of escalating commitment leading to major financial losses
B. The limited availability of resources for use in other markets
C. The lack of flexibility associated with strategic commitments
D. The increase in economic exposure due to minimal time spent in evaluating a foreign
market
E. The difficulty of building market share and capturing first-mover advantages
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. The risk-averse firm that enters a foreign market on a small scale may limit its
potential losses, but it may also miss the chance to capture first-mover advantages.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-106
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
64.
Which of the following is the reason why small-scale entry into a foreign market makes it
difficult to build market share?
A. Small-scale entry necessitates rapid entry into a foreign market.
B. Small-scale entry is associated with a lack of commitment demonstrated by the foreign
firm.
C. Small-scale entry leads to escalating strategic commitments.
D. Small-scale entry requires that extra time be spent in analyzing a foreign market.
E. Small-scale entry leads to increased exposure to a foreign market.
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. The risk-averse firm that enters a foreign market on a small scale may limit its
potential losses, but it may also miss the chance to capture first-mover advantages.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-107
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
65.
Which of the following is true of market entry by an international firm considering foreign
expansion?
A. Politically unstable nations, by virtue of their higher potential for growth, are the best
foreign markets.
B. The value an international business can create in a foreign market does not depend on the
nature of indigenous competition.
C. The avoidance of pioneering costs that a later entrant has to bear is a first-mover
advantage.
D. Strategic commitments have minor influence on business decisions.
E. Entering a large developing nation before most other international businesses on a large
scale is associated with high levels of risk.
There are no right decisions concerning foreign expansion, just decisions that are associated
with different levels of risk and reward. Entering a large developing nation on a large scale will
be associated with high levels of risk. In contrast, entering developed nations on a small scale
to first learn more about the markets will be associated with much lower levels of risk.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-108
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
66.
Which of the following is the most likely outcome of a foreign firm entering a developed nation
on a small scale after other international businesses in the firm's industry?
A. Capturing first-mover advantages
B. Higher pioneering costs
C. Rapid increase in market share
D. Limited future growth potential
E. Increase in sales volume
Entering developed nations after other international businesses in the firm’s industry, and
entering on a small scale to first learn more about those markets, will be associated with much
lower levels of risk. However, the potential long-term rewards are also likely to be lower
because the firm is essentially forgoing the opportunity to capture first-mover advantages and
because the lack of commitment signaled by small-scale entry may limit its future growth
potential.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-109
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
67.
Which of the following is a course of action suggested by Christopher Bartlett and Sumantra
Ghoshal for companies based in developing nations?
A. Build up financial resources to match those of the largest global competitors.
B. Enter foreign markets at a similar time and scale as multinational companies.
C. Enter markets rapidly and exit at an equally rapid pace to avoid heavy losses.
D. Benchmark one's operations and performance against foreign multinationals.
E. Do not focus on market niches that multinational companies ignore.
Christopher Bartlett and Sumantra Ghoshal argue that companies based in developing nations
should use the entry of foreign multinationals as an opportunity to learn from these
competitors by benchmarking their operations and performance against them.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 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
13-110
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
68.
Which of the following is an advantage of exporting as a mode of entry into foreign markets?
A. A firm can avoid the cost of establishing manufacturing operations in the host country.
B. A firm does not have to bear the development costs and risks associated with opening a
foreign market.
C. A firm can earn returns from process technology skills in countries where FDI is restricted.
D. A firm has access to local partner’s knowledge.
E. A firm has the ability to engage in global strategic coordination.
An advantage of exporting as a mode of entry into a foreign market is that it avoids the often
substantial costs of establishing manufacturing operations in the host country.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-111
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
69.
Which of the following is an advantage of exporting as a mode of entry into foreign markets?
A. It helps a firm achieve experience curve and location economies.
B. A firm does not have to bear the development costs and risks associated with opening a
foreign market.
C. A firm has the ability to engage in global strategic coordination.
D. It helps the firm earn returns from process technology skills in countries where FDI is
restricted.
E. It can provide the firm access to the local partner’s knowledge.
An advantage of exporting as a mode of entry into foreign markets is that it may help a firm
achieve experience curve and location economies. By manufacturing the product in a
centralized location and exporting it to other national markets, the firm may realize substantial
scale economies from its global sales volume.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-112
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
70.
Which of the following is a disadvantage of exporting as a mode of entry into foreign
markets?
A. The exporting firm incurs the costs of establishing manufacturing operations in the host
country.
B. The firm is unable to realize curve economies through exporting.
C. High transport costs can make exporting uneconomical, particularly for bulk products.
D. The firm cannot use countertrading options when exporting.
E. A firm may not realize substantial scale economies from its global sales volume via
exporting.
A disadvantage of exporting as a mode of entry into foreign markets is that high transport
costs can make it uneconomical, particularly for bulk products.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-113
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
71.
Which of the following is a disadvantage of exporting as a mode of entry into foreign
markets?
A. The firm incurs the costs of establishing manufacturing operations in the host country.
B. The firm is unable to realize experience curve economies through exporting.
C. The local agents may not market the firm's products as well as the firm would if it managed
its marketing itself.
D. The firm cannot use countertrading options when exporting.
E. The firm may not realize substantial scale economies from its global sales volume via
exporting.
One drawback of exporting arises when a firm delegates its marketing, sales, and service in
each country where it does business to another company—a local agent or another
multinational company. Such a company may often carry the products of competing firms and
may have divided loyalties. In such cases, the local agent may not do as good a job as the
firm would if it managed its marketing itself.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-114
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
72.
In exporting, problems with local marketing agents can be overcome by:
A. selling intangible property to a franchisee and insisting on rules to conduct the business.
B. changing agents frequently.
C. engaging in turnkey projects and exporting process technology to foreign firms.
D. entering into cross-licensing agreements with foreign firms.
E. setting up wholly owned subsidiaries in foreign nations to handle local marketing.
The way around the problem of local marketing agents in exporting is to set up wholly owned
subsidiaries in foreign nations to handle local marketing, sales, and service. 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: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-115
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
73.
In a _____, a mode of entry into foreign markets, a firm agrees to set up an operating plant for
a foreign client and hand over the plant when it is fully operational.
A. franchising agreement
B. turnkey project
C. licensing agreement
D. wholly owned subsidiary
E. joint venture
A turnkey project, a mode of entry into a foreign market, refers to a project in which a firm
agrees to set up an operating plant for a foreign client and hand over the “key” when the plant
is fully operational.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-116
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
74.
In the context of modes of entry into foreign markets, turnkey projects are a means of:
A. granting rights to intangible property to other firms.
B. establishing firms that are jointly owned by two or more otherwise independent firms.
C. exporting process technology to other countries.
D. setting up wholly owned subsidiaries in foreign nations.
E. selling products produced in one country to residents of other countries.
Turnkey projects are a means of exporting process technology to other countries. They are
most common in the chemical, pharmaceutical, petroleum refining, and metal refining
industries, all of which use complex, expensive production technologies.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-117
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
75.
Which of the following is an advantage of turnkey projects as a mode of entry into foreign
markets?
A. It is an ideal way to gain entry into a country where FDI is not limited by government
regulations.
B. It is a useful strategy to earn great returns from the know-how of a technologically complex
process.
C. It is an ideal way to establish a firm's long-term presence in a foreign country.
D. It helps protect a firm's competitive advantage.
E. The firm that enters into a turnkey project with a foreign enterprise avoids giving rise
to potential competitors.
The know-how required to assemble and run a technologically complex process, such as
refining petroleum or steel, 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.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-118
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
76.
Which of the following is an advantage of turnkey projects as a mode of entry into foreign
markets?
A. It helps create competition which in turn increases the quality of production.
B. It can be less risky than conventional FDI.
C. It is an ideal way to establish a long-term presence in a foreign country.
D. It helps protect the competitive advantage of process technology.
E. The firm that enters into a turnkey project with a foreign enterprise avoids giving rise
to potential competitors.
A turnkey strategy can be less risky than conventional FDI. In a country with unstable political
and economic environments, a longer-term investment might expose the firm to unacceptable
political and/or economic risks (e.g., the risk of nationalization or of economic collapse).
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-119
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
77.
A drawback of a(n) _____, a mode of entry into foreign markets, is that the firm that uses this
strategy will have no long-term interest in a foreign country.
A. joint venture
B. greenfield venture
C. acquisition
D. turnkey deal
E. franchising agreement
A drawback associated with a turnkey strategy is that the firm that enters into a turnkey deal
will have no long-term interest in the foreign country. This can be a disadvantage if that
country subsequently proves to be a major market for the output of the process that has been
exported.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-120
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
78.
Turnkey projects being short-term propositions can be disadvantageous for a firm if a country
subsequently proves to be a major market for the output of the process that has been
exported. The firm can get around this problem by:
A. selling competitive advantage to competitors.
B. competing with the local firm in the global market.
C. taking a minority equity interest in the operation.
D. withholding vital process technology from the local firm.
E. establishing a joint venture with a local firm.
A firm that enters into a turnkey deal will have no long-term interest in the foreign country. This
can be a disadvantage if that country subsequently proves to be a major market for the output
of the process that has been exported. One way around this is to take a minority equity
interest in the operation.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-121
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
79.
In a(n) _____,a mode of entry into foreign markets, a firm grants the rights to intangible
property to another firm for a specified period, and in return, receives a royalty fee.
A. licensing agreement
B. turnkey project
C. acquisition
D. joint venture
E. wholly owned subsidiary
A licensing agreement is an arrangement whereby a firm (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: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-122
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
80.
Which of the following is true of licensing as a mode of entry into foreign markets?
A. A licensor grants the rights to tangible property to a licensee.
B. A licensing agreement grants rights to intangible property to a licensee for an unspecified
period.
C. The licensor receives a royalty fee from the licensee.
D. The licensor puts up all of the capital necessary to start a business.
E. The licensor maintains control over its technological know-how.
A licensing agreement is an arrangement whereby a firm (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: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-123
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
81.
In terms of licensing, which of the following is an intangible property?
A. Infrastructure
B. Machinery
C. Leased equipment
D. Advanced computing systems
E. Patent
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. Intangible property includes patents, inventions,
formulas, processes, designs, copyrights, and trademarks.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-124
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
82.
Which of the following is true of licensing as a mode of entry into foreign markets?
A. The licensor grants the rights to tangible property to a licensee.
B. A licensing agreement grants rights to intangible property to a licensee for an unspecified
period.
C. The licensee puts up most of the capital necessary to get the overseas operation
operational.
D. The licensor bears the development costs and risks associated with opening a foreign
market.
E. A licensing agreement allows a licensor to maintain control over its technological knowhow.
In the typical international licensing deal, the licensee puts up most of the capital necessary to
get the overseas operation going. Thus, a 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: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-125
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
83.
Which of the following is an advantage of licensing as a mode of entry into foreign markets?
A. It helps a firm to realize substantial experience curve and location economies.
B. It gives the firm tight control over manufacturing, marketing, and strategy.
C. The licensor does not have to bear the development costs and risks associated with
opening a foreign market.
D. Firms can easily maintain control over how their technological know-how is used by a
licensee.
E. Licensing allows a foreign firm to use profits earned in one country to support competitive
attacks in another.
In the typical international licensing deal, the licensee puts up most of the capital necessary to
get the overseas operation going. Thus, 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: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-126
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
84.
Which of the following is a drawback of licensing as a mode of entry into foreign markets?
A. The licensor has to bear all costs and risks associated with developing a foreign market.
B. Licensing does not give a firm tight control over manufacturing, marketing, and strategy.
C. Licensing does not benefit firms lacking the capital to expand operations overseas.
D. Licensing deals fail when there are barriers to foreign investment in a particular country.
E. A firm that enters into a licensing deal with a foreign country will have no long-term interest
in that country.
A disadvantage of licensing is that it does not give a firm the tight control over manufacturing,
marketing, and strategy that is required for realizing experience curve and location economies.
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: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-127
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
85.
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. open source licensing
B. non-exclusive licensing
C. cross-licensing
D. exclusive licensing
E. reciprocal 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. Such agreements are
believed to reduce the risks associated with licensing technological know-how.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-128
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
86.
_____ with a foreign firm are believed to reduce the risks associated with licensing
technological know-how.
A. Compulsory licensing agreements
B. Reciprocal licensing agreements
C. Open source licensing agreements
D. Cross-licensing agreements
E. Exclusive licensing agreements
Cross-licensing agreements are believed to reduce the risks associated with licensing
technological know-how, because the licensee realizes that if it violates the licensing contract
(by using the knowledge obtained to compete directly with the licensor), the licensor can do
the same to it.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-129
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
87.
Which of the following is an example of an industry in which cross-licensing agreements are
increasingly becoming common?
A. Glass-blowing
B. Biotechnology
C. Organic farming
D. Basketry
E. Weaving
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. Such cross-licensing
agreements are increasingly common in high-technology industries.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-130
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
88.
_____, a mode of entry into foreign markets, enable firms to hold each other hostage, which
reduces the probability that they will behave opportunistically toward each other.
A. Cross-licensing agreements
B. Turnkey projects
C. Joint ventures
D. Greenfield ventures
E. Wholly owned subsidiaries
Cross-licensing agreements enable firms to hold each other hostage, which reduces the
probability that they will behave opportunistically toward each other. Such cross-licensing
agreements are increasingly common in high-technology industries.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-131
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
89.
Which of following is true of franchising as a mode of entry into foreign markets?
A. The franchiser insists that the franchisee agree to abide by strict rules as to how it does
business.
B. The franchiser incurs all costs related to starting operations in a foreign market.
C. Franchising is employed primarily by manufacturing firms.
D. Franchising allows firms to take profits from one country to support competitive attacks in
another.
E. A significant advantage of franchising is quality control.
Franchising is basically a specialized form of licensing in which the franchiser not only sells
intangible property (normally a trademark) to the franchisee, but also insists that the
franchisee agree to abide by strict rules as to how it does business.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-132
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
90.
Franchising, a mode of entry into foreign markets, is employed primarily by _____ firms.
A. service
B. manufacturing
C. online
D. high-technology
E. primary
Whereas licensing is pursued primarily by manufacturing firms, franchising is employed
primarily by service firms.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-133
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
91.
Which of the following is an advantage of franchising as a mode of entry into foreign
markets?
A. The franchiser is relieved of many of the costs and risks of opening a foreign market on its
own.
B. The franchiser is allowed to take profits out of one country to support competitive attacks in
another.
C. The franchiser can easily maintain uniform quality across many geographically dispersed
franchisees.
D. Manufacturing concerns can be effectively coordinated across adjacent processes.
E. The franchiser can support its short-term interests in a country with an unstable economy.
Franchising is similar to licensing, although franchising tends to involve longer-term
commitments than licensing. With a franchising agreement, a firm is relieved of many of the
costs and risks of opening a foreign market on its own. Instead, the franchisee typically
assumes those costs and risks.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-134
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
92.
Which of the following is a disadvantage of franchising as a mode of entry into foreign
markets?
A. The franchiser has to bear development costs and risks associated with foreign expansion.
B. Franchising leads to undesirable results for service firms.
C. It is difficult to maintain quality control across foreign franchisees that are distant from the
franchiser.
D. The franchiser has no long-term interests in the foreign country.
E. It forces a franchiser to take out profits from one country to support competitive attacks in
another.
A disadvantage of franchising is that the geographical distance of the firm from its foreign
franchisees can make poor quality difficult to detect. In addition, the sheer numbers of
franchisees can make quality control difficult. Due to these factors, quality problems may
persist.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-135
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
93.
Which of the following is a disadvantage of franchising as a mode of entry into foreign
markets?
A. The franchiser has to bear development costs and risks associated with foreign expansion.
B. While franchising offers an ideal entry mode for manufacturing firms, it often leads to
undesirable results for service firms.
C. Poor quality standards of a foreign franchisee can cause a decline in the franchising firm's
worldwide reputation.
D. The franchiser has no incentive to sustain a long-term interest in the foreign country.
E. Franchising often forces a franchiser to take out profits from one country to support
competitive attacks in another.
The foundation of franchising arrangements is that the firm's brand name conveys a message
to consumers about the quality of the firm's product. This presents a problem in that foreign
franchisees may not be as concerned about quality as they are supposed to be, and the result
of poor quality can extend beyond lost sales in a particular foreign market to a decline in the
firm's worldwide reputation.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-136
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
94.
Which of the following can be used to overcome quality control problems associated with
franchising as a mode of entry into foreign markets?
A. Licensing agreements
B. Subsidiaries
C. Turnkey projects
D. Export licenses
E. Cross-licensing agreements
One way around quality control problems while franchising is to set-up a subsidiary in each
country in which the firm expands. The subsidiary might be wholly owned by the company or a
joint venture with a foreign company. The subsidiary assumes the rights and obligations to
establish franchises throughout the particular country or region.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-137
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
95.
A _____, a mode of entry into foreign markets, entails establishing a firm that is collectively
owned by two or more otherwise independent firms.
A. licensing agreement
B. wholly owned subsidiary
C. franchising agreement
D. joint venture
E. greenfield investment
A joint venture entails establishing a firm that is jointly owned by two or more otherwise
independent firms. Establishing a joint venture with a foreign firm has long been a popular
mode for entering a new market.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-138
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
96.
A joint venture in which both parties hold equal ownership stakes is known as a(n) _____.
A. offshore joint venture
B. 50/50 joint venture
C. 25/75 joint venture
D. marketing joint venture
E. fully integrated joint venture
A joint venture entails establishing a firm that is jointly owned by two or more otherwise
independent firms. The most typical joint venture is a 50/50 venture, in which each of the two
parties holds a 50 percent ownership stake and contributes a team of managers to share
operating control.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-139
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
97.
Which of the following is an advantage of joint ventures as a mode of entry into foreign
markets?
A. The foreign firm benefits from a local partner's knowledge of the host country.
B. The foreign firm can protect its technology from being appropriated by its local partner.
C. There is less cause for friction and conflict between the foreign and local partners.
D. It gives a firm tight control over subsidiaries that which enable it to realize experience curve
or location economies.
E. The foreign firm does not have to bear any development costs and risks associated with
opening a foreign market.
One of the advantages of joint ventures is that a firm benefits from a local partner’s knowledge
of the host country’s competitive conditions, culture, language, political systems, and business
systems.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-140
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
98.
Which of the following is a disadvantage of joint ventures as a mode of entry into foreign
markets?
A. Joint ventures with local partners face a high risk of being subjected to adverse
government interference.
B. Firms engaged in joint ventures have short-term commitments in the foreign market.
C. Joint ventures do not give a firm tight control over subsidiaries that it might need to realize
experience curve or location economies.
D. In many countries, political considerations make joint ventures impractical as an entry
mode.
E. Quality control problems arise due to lack of interest of local partners.
One of the disadvantages of joint ventures is that it does not give a firm the tight control over
subsidiaries that it might need to realize experience curve or location economies. Nor does it
give a firm the tight control over a foreign subsidiary that it might need for engaging in
coordinated global attacks against its rivals.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-141
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
99.
Which of the following is a disadvantage of joint ventures as a mode of entry into foreign
markets?
A. Joint ventures with local partners face a high risk of being subjected to government
interference.
B. Joint ventures can lead to conflicts and battles for control between the investing firms.
C. Firms engaged in joint ventures have short-term commitments in the foreign market.
D. In many countries, political considerations make joint ventures impractical as an entry
mode.
E. The foreign firm cannot rely on its local partner for unbiased information about the host
country.
One of the disadvantages of joint ventures is that a the shared ownership arrangement can
lead to conflicts and battles for control between the investing firms if their goals and objectives
change or if they take different views as to what the strategy should be.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-142
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
100.
Which of the following is an advantage of joint ventures as a mode of entry into foreign
markets?
A. A foreign firm shares the costs and risks of development with its local partner.
B. A foreign firm can easily maintain control over how its technological know-how is used by a
local partner.
C. There is less cause for friction and conflict between partners involved in a joint venture.
D. Joint ventures are ideal to maintain tight control over subsidiaries.
E. Joint ventures benefit firms lacking the capital to expand operations overseas.
One of the advantages of joint ventures is that when the development costs and/or risks of
opening a foreign market are high, a firm might gain by sharing these costs and or risks with a
local partner.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-143
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
101.
Which of the following is a way in which a wholly owned subsidiary may be established in a
foreign market?
A. Through a turnkey operation with a local partner
B. Through franchising
C. By acquiring an established firm in the host nation
D. By exporting
E. Through a licensing agreement
Establishing a wholly owned subsidiary in a foreign market can be done two ways. The firm
either can set up a new operation in that country, often referred to as a greenfield venture, or it
can acquire an established firm in that host nation and use that firm to promote its products.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-144
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
102.
Establishing a _____ gives international firms a 100 percent share in the profits generated in a
foreign market.
A. franchising agreement
B. licensing deal
C. joint venture
D. wholly owned subsidiary
E. turnkey project
In a wholly owned subsidiary, the firm owns 100 percent of the stock. Therefore, establishing a
wholly owned subsidiary gives the firm a 100 percent share in the profits generated in a
foreign market.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-145
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
103.
Which of the following entry modes into a foreign market best serves a high-tech firm?
A. Turnkey projects
B. Franchising
C. Wholly owned subsidiaries
D. Joint ventures
E. Exporting
When a firm’s competitive advantage is based on technological competence, a wholly owned
subsidiary will often be the preferred entry mode because it reduces the risk of losing control
over that competence. Many high-tech firms prefer this entry mode for overseas expansion.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-146
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
104.
Which of the following is an advantage of wholly owned subsidiaries as a mode of entry into
foreign markets?
A. A foreign firm is relieved of many of the costs and risks associated with opening a foreign
market on its own.
B. The risk of losing control over a firm's technological competence is reduced.
C. A foreign firm is insulated completely from the threat posed by high transport costs.
D. It is the most politically acceptable mode of entry into foreign markets.
E. It helps create competition which in turn increases the quality of production.
An advantage of wholly owned subsidiaries is that when a firm’s competitive advantage is
based on technological competence, a wholly owned subsidiary will often be the preferred
entry mode because it reduces the risk of losing control over that competence.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-147
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
105.
Which of the following is generally the most costly form of serving a foreign market from a
capital investment standpoint?
A. Joint venture
B. Licensing
C. Franchising
D. Wholly owned subsidiary
E. Exporting
Establishing a wholly owned subsidiary is generally the most costly method of serving a
foreign market from a capital investment standpoint. Firms doing this must bear the full capital
costs and risks of setting up overseas operations.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-148
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
106.
Which of the following is a disadvantage of wholly owned subsidiaries as a mode of entry into
foreign markets?
A. Foreign firms find it difficult to maintain control over how their technological know-how is
used.
B. Foreign firms cannot use profits earned in one country to support competitive attacks in
another.
C. Foreign firms tend to have short-term commitments in the foreign market.
D. Foreign firms cannot realize substantial experience curve and location economies.
E. Foreign firms must bear the full capital costs and risks of setting up overseas operations.
Establishing a wholly owned subsidiary is generally the most costly method of serving a
foreign market from a capital investment standpoint. Firms doing this must bear the full capital
costs and risks of setting up overseas operations.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-149
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
107.
Which of the following modes of entry into foreign markets has the distinct advantages of
protection of technology, the ability to engage in global strategic coordination, and the ability to
realize location and experience curve economies?
A. Franchising
B. Wholly owned subsidiaries
C. Joint ventures
D. Licensing
E. Exporting
When a firm’s competitive advantage is based on technological competence, a wholly owned
subsidiary will often be the preferred entry mode because it reduces the risk of losing control
over that competence. A wholly owned subsidiary gives a firm tight control over operations in
different countries. This is necessary for engaging in global strategic coordination. Also, a
wholly owned subsidiary may be required if a firm is trying to realize location and experience
curve economies.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-150
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
108.
Which of the following is true of international firms considering foreign expansion?
A. The timing and scale of entry of foreign expansion are minor details in comparison with the
choice of foreign market.
B. The long-run economic benefits of doing business in a country are solely a function of the
country's population size.
C. If the firm’s core competence is based on proprietary technology, entering a joint venture
might risk losing control of that technology to the joint-venture partner.
D. The costs and risks associated with foreign expansion are higher in economically
advanced nations.
E. Politically unstable and less developed nations offer favorable benefit-cost-risk trade-off
conditions.
If a firm’s core competence is based on proprietary technology, entering a joint venture might
risk losing control of that technology to the joint-venture partner, in which case the strategy
may seem unattractive.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode.
Topic: Selecting an Entry Mode
13-151
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
109.
Which of the following modes of entry into foreign markets has the ability to realize location
and experience curve economies?
A. Turnkey projects
B. Joint ventures
C. Licensing
D. Exporting
E. Franchising
According to table 13.1, an advantage of exporting is the ability to realize location and
experience curve economies.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode.
Topic: Selecting an Entry Mode
110.
Which of the following modes of entry into foreign markets can result in a lack of control over
quality?
A. Exporting
B. Franchising
C. Turnkey projects
D. Wholly owned subsidiaries
E. Joint ventures
According to table 13.1, one of the disadvantages of franchising is that it can result in a lack of
control over quality.
AACSB: Analytic
13-152
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode.
Topic: Selecting an Entry Mode
111.
Which of the following modes of entry into foreign markets have the advantage of being
characterized by low development costs and risks?
A. Exporting
B. Licensing
C. A greenfield investment
D. A wholly owned subsidiary
E. A joint venture
According to table 13.1, an advantage of licensing is that it is characterized by low
development costs and risks.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode.
Topic: Selecting an Entry Mode
13-153
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
112.
Axiom International wants to expand its operations to a country that is politically, culturally,
and economically different from its home country. The firm needs to select a mode of
entry which would give it access to local knowledge, allow sharing of development costs and
risks, and also be politically acceptable. Which of the following modes of entry into foreign
markets is most suitable for Axiom International?
A. Wholly owned subsidiary
B. Joint venture
C. Exporting
D. Greenfield investments
E. Licensing
According to table 13.1, the advantages of joint ventures are access to local partner’s
knowledge, sharing of development costs and risks, and political acceptability.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode.
Topic: Selecting an Entry Mode
13-154
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
113.
Jupiter Systems is a high-tech firm looking to set up operations in a foreign country to profit
from its technological know-how which is its core competency. Which of the following modes
of entry would be most favorable to the firm if it wants to keep a tight control over its
technology?
A. Wholly owned subsidiary
B. Joint venture
C. Franchising
D. Licensing
E. Turnkey project
If a firm’s competitive advantage (its core competence) is based on control over proprietary
technological know-how, licensing and joint-venture arrangements should be avoided if
possible to minimize the risk of losing control over that technology. Thus, if a high-tech firm
sets up operations in a foreign country to profit from a core competency in technological knowhow, it will probably do so through a wholly owned subsidiary.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode.
Topic: Selecting an Entry Mode
13-155
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
114.
Which of the following modes of entry is suitable for service firms where the risk of losing
control over the management skills or technological know-how is not much of a concern, and
where the firms' valuable asset is their brand name?
A. Exporting
B. Franchising
C. Licensing
D. Turnkey projects
E. Cross-licensing
The competitive advantage of many service firms is based on management know-how. For
such firms, the risk of losing control over the management skills and technology to franchisees
or joint-venture partners is not that great. These firms’ valuable asset is their brand name, and
brand names are generally well protected by international laws pertaining to trademarks. As a
result, many service firms favor a combination of franchising and subsidiaries to control the
franchises within particular countries or regions.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode.
Topic: Selecting an Entry Mode
13-156
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
115.
Which of the following is a disadvantage of wholly owned subsidiaries as a mode of entry into
foreign markets?
A. Lack of control over quality
B. High costs and risks
C. Problems with local marketing agents
D. Inability to engage in global strategic coordination
E. Lack of control over technology
According to table 13.1, a disadvantage of wholly owned subsidiaries is the high costs and
risks involved.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode.
Topic: Selecting an Entry Mode
13-157
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
116.
A firm that expects rapid imitation of its core technology by competitors should:
A. revert to older technologies.
B. engage in exporting on a large scale.
C. license its technology to foreign firms.
D. set up a wholly owned subsidiary.
E. enter into a joint venture with a foreign firm.
When a firm perceives its technological advantage to be only transitory and when it expects
rapid imitation of its core technology by competitors, it might want to license its technology as
rapidly as possible to foreign firms to gain global acceptance for its technology before the
imitation occurs.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode.
Topic: Selecting an Entry Mode
13-158
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
117.
Why do firms pursuing global standardization or transnational strategies tend to prefer
establishing wholly owned subsidiaries?
A. It gives firms sound knowledge of the local markets, culture, and the political environment.
B. It helps protect competitive advantages based on technology.
C. It allows firms to use the profits generated in one market to improve its competitive position
in another market.
D. It is the most politically accepted mode of entry into foreign markets.
E. It has the least costs and risks associated with developing a foreign market.
Firms pursuing global standardization or transnational strategies tend to prefer establishing
wholly owned subsidiaries because it gives the firm the ability to use the profits generated in
one market to improve its competitive position in another market.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode.
Topic: Selecting an Entry Mode
13-159
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
118.
Which of the following is an advantage of acquisitions as a means of entering foreign
markets?
A. They are quick to execute and help firms to rapidly build their presence in the target foreign
market.
B. It is much easier to change the culture of an existing organization than build a new
organization.
C. It is easier to convert the operating routines of acquired units than establish routines in new
subsidiaries.
D. They give firms access to valuable intangible assets while minimizing a pileup of tangible
assets.
E. Acquired firms are often undervalued and hence assets can be purchased at minimal
prices.
Acquisitions are quick to execute. By acquiring an established enterprise, a firm can rapidly
build its presence in the target foreign market.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-160
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
119.
Which of the following is an advantage of acquisitions as a means of entering foreign
markets?
A. Acquiring firms often underpay for the assets of the acquired firm.
B. It enables firms to preempt their competitors.
C. After an acquisition, many acquired companies face increased recruitments.
D. Integrating the operations of the acquired and acquiring entities takes a very short time.
E. Most acquisitions are successful due to adequate pre-acquisition screening.
In many cases firms make acquisitions to preempt their competitors. The need for preemption
is particularly great in markets that are rapidly globalizing, such as telecommunications, where
a combination of deregulation within nations and liberalization of regulations governing crossborder foreign direct investment has made it much easier for enterprises to enter foreign
markets through acquisitions.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-161
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
120.
Which of the following is an advantage of an acquisition as a means of entry into foreign
markets?
A. It is much easier to change the culture of an existing organization than build a new
organization.
B. It is easier to convert the operating routines of acquired units than establish routines in new
subsidiaries.
C. It yields greater long-run returns than greenfield ventures.
D. It gives firms access to valuable intangible assets along with a set of tangible assets.
E. Acquired firms are often undervalued and hence assets can be purchased at minimal
prices.
When a firm makes an acquisition in a foreign market, it not only acquires a set of tangible
assets, such as factories, logistics systems, customer service systems, and so on, but it also
acquires valuable intangible assets including a local brand name and managers’ knowledge of
the business environment in that nation.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-162
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
121.
Which of the following postulates that top managers typically overestimate their ability to
create value from an acquisition?
A. Bandwagon effect
B. Fisher effect
C. Hubris hypothesis
D. International Fisher effect
E. Learning effect
The hubris hypothesis postulates that top managers typically overestimate their ability to
create value from an acquisition, primarily because rising to the top of a corporation has given
them an exaggerated sense of their own capabilities.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
122.
Which of the following is a reason why firms often overpay for the assets of an acquired firm?
A. Studies supporting the rise of failed companies post acquisitions
B. Evidence of high management turnover post acquisitions
C. The success rate of acquisitions exceeding that of failures
D. Interest of more than one party in acquiring a particular firm
E. Inevitable clash between cultures of acquiring and acquired firms
Acquiring firms often overpay for the assets of the acquired firm. The price of the target firm
can get bid up if more than one firm is interested in its purchase, as is often the case.
AACSB: Analytic
13-163
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
123.
The management of an acquiring firm is often too optimistic about the value that can be
created via an acquisition and is thus willing to pay a significant premium over a target firm’s
market capitalization. This is known as the _____ and is the reason why acquisitions fail.
A. bandwagon effect
B. Fisher effect
C. hubris hypothesis
D. international Fisher effect
E. learning effect
The management of the acquiring firm is often too optimistic about the value that can be
created via an acquisition and is thus willing to pay a significant premium over a target firm’s
market capitalization. This is called the “hubris hypothesis” of why acquisitions fail. The hubris
hypothesis postulates that top managers typically overestimate their ability to create value
from an acquisition, primarily because rising to the top of a corporation has given them an
exaggerated sense of their own capabilities.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-164
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
124.
Which of the following is a reason why acquisitions, a mode of entering foreign markets, fail?
A. There is a clash between the cultures of the acquiring and acquired firm.
B. Acquisitions take a long time to execute.
C. Acquisitions are easily preempted by making greenfield investments.
D. The revenue and profit stream generated by an acquisition's resources is usually unknown.
E. Losses produced by intangible assets outweigh profits from acquired tangible assets.
A reason why acquisitions, a mode of entering foreign markets, fail is because there is a clash
between the cultures of the acquiring and acquired firms. After an acquisition, many acquired
companies experience high management turnover, possibly because their employees do not
like the acquiring company’s way of doing things.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-165
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
125.
Spring, an American firm, recently acquired another company known as Tazel Inc. in
Indonesia. The high-level managers at Tazel Inc. quit because they could not cope with the
domineering and straightforward approach of their American counterparts. This illustrates how
acquisitions may fail because:
A. managers overestimate their ability to create value from an acquisition.
B. integration of operations between the two firms takes longer than forecasted.
C. there is a clash between the cultures of the acquired and the acquiring firm.
D. an acquiring firm overpays for the assets of an acquired firm.
E. inadequate pre-acquisition screening has been done.
Many acquisitions fail because there is a clash between the cultures of the acquiring and
acquired firm. After an acquisition, many acquired companies experience high management
turnover, possibly because their employees do not like the acquiring company’s way of doing
things.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-166
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
126.
Which of the following is a way in which the risk of failure of an acquisition can be reduced?
A. By undervaluing the assets of an acquired firm
B. By ensuring that firms are acquired in the home country
C. By replacing high-level managers of an acquired firm
D. By a detailed auditing of operations, financial position, and management culture
E. By investing only in a firm that is managing to break even
Screening of the foreign enterprise to be acquired, including a detailed auditing of operations,
financial position, and management culture, can help to make sure the firm (1) does not pay
too much for the acquired unit, (2) does not uncover any nasty surprises after the acquisition,
and (3) acquires a firm whose organization culture is not antagonistic to that of the acquiring
enterprise, thus reducing risk of failure.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-167
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
127.
Which of the following is an advantage of acquisitions as a means of entry into foreign
markets?
A. When a firm makes an acquisition, it buys a set of assets that are producing a known
revenue.
B. Acquiring firms underpay for the assets of the acquired firm.
C. After an acquisition, many acquired companies face a rise in recruitments.
D. Integrating the operations of the acquired and acquiring entities often takes a short period
of time.
E. Most acquisitions succeed due to detailed pre-acquisition screening.
Managers may believe acquisitions to be less risky than greenfield ventures. When a firm
makes an acquisition, it buys a set of assets that are producing a known revenue and profit
stream.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-168
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128.
To reduce the risks of failure of an acquisition, managers must:
A. pay more for the acquired unit to please its existing employees.
B. encourage and facilitate management turnover.
C. acquire a firm without wasting time on screening.
D. move rapidly after an acquisition to put an integration plan in place.
E. ensure that the work cultures are significantly different from each other.
Managers must move rapidly after an acquisition to put an integration plan in place and to act
on that plan. Some people in both the acquiring and acquired units will try to slow or stop any
integration efforts, particularly when losses of employment or management power are
involved, and managers should have a plan for dealing with such impediments before they
arise.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-169
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
129.
An advantage of a(n) _____, a mode of entry into foreign markets, is that it provides a firm with
much greater ability to build the kind of subsidiary company that it wants.
A. acquisition
B. merger
C. franchise
D. greenfield venture
E. turnkey project
The big advantage of establishing a greenfield venture in a foreign country is that it gives the
firm a much greater ability to build the kind of subsidiary company that it wants. For example, it
is much easier to build an organization culture from scratch than it is to change the culture of
an acquired unit.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-170
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
130.
An advantage of a(n) _____ as a mode of entry into foreign markets is that it is much easier to
build an organization culture from scratch than it is to change the culture of an acquired unit.
A. joint venture
B. greenfield venture
C. merger
D. acquisition
E. turnkey project
The big advantage of establishing a greenfield venture in a foreign country is that it gives the
firm a much greater ability to build the kind of subsidiary company that it wants. For example, it
is much easier to build an organization culture from scratch than it is to change the culture of
an acquired unit.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-171
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
131.
Which of the following is a disadvantage of greenfield ventures as a mode of entry into foreign
markets?
A. They have a higher potential for throwing up unpleasant surprises.
B. It is much more difficult to build an organizational culture from scratch than to change the
culture of an existing unit.
C. Companies find it difficult to avoid falling into the trap of the hubris hypothesis.
D. It is slower to establish than acquisitions.
E. A firm does not have the freedom to build the kind of subsidiary that it wants.
Greenfield ventures are slower to establish. They are also risky. As with any new venture, a
degree of uncertainty is associated with future revenue and profit prospects.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-172
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
132.
Which of the following is a disadvantage of greenfield ventures as a mode of entering foreign
markets?
A. Greenfield ventures have a higher potential for throwing up unpleasant surprises.
B. It is much more difficult to build an organizational culture from scratch than to change the
culture of an existing unit.
C. Companies find it difficult to avoid the hubris hypothesis of acquisitions.
D. There is a possibility of being preempted by aggressive global competitors who enter via
acquisitions.
E. A firm does not have the freedom to build the kind of subsidiary that it wants.
A disadvantage of greenfield ventures is the possibility of being preempted by more
aggressive global competitors who enter via acquisitions and build a big market presence that
limits the market potential for the greenfield venture.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-173
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
133.
If a firm is seeking to enter a market via a wholly owned subsidiary where there are already
well-established incumbent enterprises, and where global competitors are also interested in
establishing a presence, a(n) _____ is a suitable mode of entry.
A. acquisition
B. licensing deal
C. greenfield venture
D. turnkey project
E. exporting deal
If a firm is seeking to enter a market where there are already well-established incumbent
enterprises, and where global competitors are also interested in establishing a presence, it
may pay the firm to enter via an acquisition. In such circumstances, a greenfield venture may
be too slow to establish a sizable presence.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-174
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
134.
If a firm is considering entering a country where incumbents exist, and if the competitive
advantage of the firm is based on the transfer of organizationally embedded competencies,
skills, routines, and culture, then a _____ is the preferable mode of entry.
A. greenfield venture
B. joint venture
C. licensing agreement
D. franchising deal
E. turnkey project
If a firm is considering entering a country where there are no incumbent competitors to be
acquired, then a greenfield venture may be the only mode. Even when incumbents exist, if the
competitive advantage of the firm is based on the transfer of organizationally embedded
competencies, skills, routines, and culture, it may still be preferable to enter via a greenfield
venture.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-175
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
135.
If a firm is considering entering a country where there are no incumbent competitors to be
acquired, then which of the following modes of entry into foreign markets is most suitable?
A. Acquisition
B. Licensing deal
C. Greenfield venture
D. Turnkey project
E. Franchising deal
If the firm is considering entering a country where there are no incumbent competitors to be
acquired, then a greenfield venture may be the only mode.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
Essay Questions
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136.
Briefly describe the value that an international business can create in a foreign market?
An important factor in an international firm choosing which markets to enter is the value an
international business can create in a foreign market. This depends on the suitability of its
product offering to that market and the nature of indigenous competition. If the international
business can offer a product that has not been widely available in that market and that
satisfies an unmet need, the value of that product to consumers is likely to be much greater
than if the international business simply offers the same type of product that indigenous
competitors and other foreign entrants are already offering. Greater value translates into an
ability to charge higher prices and/or to build sales volume more rapidly.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
137.
What is meant by first-mover advantages? Describe three first-mover advantages for
international businesses.
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. 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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
13-178
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
138.
In terms of international business, briefly describe pioneering costs.
Pioneering costs are 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 include the costs of business
failure if the firm, due to its ignorance of the foreign environment, makes major mistakes.
Pioneering costs also include the costs of promoting and establishing a product offering,
including the costs of educating customers. These can be significant when the product being
promoted is unfamiliar to local consumers. In contrast, later entrants may be able to ride on an
early entrant’s investments in learning and customer education by watching how the early
entrant proceeded in the market, by avoiding costly mistakes made by the early entrant, and
by exploiting the market potential created by the early entrant’s investments in customer
education.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
13-179
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
139.
What are the consequences of an international firm entering a foreign market on a significant
scale?
The consequences of entering on a significant scale—entering rapidly—are associated with
the value of the resulting strategic commitments. A strategic commitment has a long-term
impact and is difficult to reverse. Deciding to enter a foreign market on a significant scale is a
major strategic commitment. Strategic commitments, such as rapid large-scale market entry,
can have an important influence on the nature of competition in a market.
Significant strategic commitments are neither unambiguously good nor bad. Rather, they tend
to change the competitive playing field and unleash a number of changes, some of which may
be desirable and some of which will not be. 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.
The value of the commitments that flow from rapid large-scale entry into a foreign market
must be balanced against the resulting risks and lack of flexibility associated with significant
commitments. But strategic inflexibility can also have value.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
13-180
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
140.
According to Christopher Bartlett and Sumantra Ghoshal, what strategies can a firm from a
developing country adopt to successfully enter foreign markets?
Christopher Bartlett and Sumantra Ghoshal have pointed out the ability that businesses based
in developing nations have to enter foreign markets and become global players. Although such
firms tend to be late entrants into foreign markets, and although their resources may be
limited, Bartlett and Ghoshal argue that such late movers can still succeed against wellestablished global competitors by pursuing appropriate strategies. In particular, Bartlett and
Ghoshal argue that companies based in developing nations should use the entry of foreign
multinationals as an opportunity to learn from these competitors by benchmarking their
operations and performance against them. Furthermore, they suggest the local company may
be able to find ways to differentiate itself from a foreign multinational, for example, by focusing
on market niches that the multinational ignores or is unable to serve effectively if it has a
standardized global product offering.
Having improved its performance through learning and differentiated its product offering, the
firm from a developing nation may then be able to pursue its own international expansion
strategy. Even though the firm may be a late entrant into many countries, by benchmarking
and then differentiating itself from early movers in global markets, the firm from the developing
nation may still be able to build a strong international business presence.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 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
13-181
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
141.
What are the advantages and disadvantages of exporting as a mode of entry into foreign
markets?
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.
Exporting has a number of drawbacks. First, exporting from the firm’s home base may not be
appropriate if lower-cost locations for manufacturing the product can be found abroad (i.e., if
the firm can realize location economies by moving production elsewhere). Thus, 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. This is not so much an argument against exporting
as an argument against exporting from the firm’s home country. A second drawback to
exporting is that high transport costs can make exporting uneconomical, particularly for bulk
products. One way of getting around this is to manufacture bulk products regionally. This
strategy enables the firm to realize some economies from large-scale production and at the
same time to limit its transport costs. Another drawback is that tariff barriers can make
exporting uneconomical. Similarly, the threat of tariff barriers by the host-country government
can make it very risky. A fourth drawback to exporting arises when a firm delegates its
marketing, sales, and service in each country where it does business to another company.
This is a common approach for manufacturing firms that are just beginning to expand
internationally. The other company may be a local agent, or it may be another multinational
with extensive international distribution operations. Local agents often carry the products of
competing firms and so have divided loyalties. In such cases, the local agent may not do as
good a job as the firm would if it managed its marketing itself. Similar problems can occur
when another multinational takes on distribution.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
13-182
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Topic: Entry Modes
142.
Describe turnkey projects as an entry mode into a foreign market.
Firms that specialize in the design, construction, and start-up of turnkey plants are common in
some industries. 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. This is a means of exporting process technology to other countries. Turnkey
projects are most common in the chemical, pharmaceutical, petroleum-refining, and metalrefining industries, all of which use complex, expensive production technologies.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-183
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
143.
What are some of the ways in which a firm can reduce the risk of losing its proprietary knowhow to foreign companies through licensing agreements?
A problem with licensing is the risk associated with licensing technological know-how to
foreign companies. There are ways of reducing this risk. One way is by entering into a crosslicensing agreement with a foreign firm. 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. Such agreements are believed to reduce the risks associated with
licensing technological know-how, because the licensee realizes that if it violates the licensing
contract (by using the knowledge obtained to compete directly with the licensor), the licensor
can do the same to it. Cross-licensing agreements enable firms to hold each other hostage,
which reduces the probability that they will behave opportunistically toward each other. Such
cross-licensing agreements are increasingly common in high-technology industries.
Another way of reducing the risk associated with licensing is to follow the Fuji Xerox model
and link an agreement to license know-how with the formation of a joint venture in which the
licensor and licensee take important equity stakes. Such an approach aligns the interests of
licensor and licensee, because both have a stake in ensuring that the venture is successful.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-184
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
144.
Describe the disadvantages of licensing as a mode of entry into the foreign market.
Licensing, a mode of entry into a foreign market, has three serious drawbacks. First, it does
not give a firm the tight control over manufacturing, marketing, and strategy that is required for
realizing experience curve and location economies. 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.
When these economies are important, licensing may not be the best way to expand overseas.
Second, competing in a global market may require a firm to coordinate strategic moves
across countries by using profits earned in one country to support competitive attacks in
another. By its very nature, licensing limits a firm’s ability to do this. A licensee is unlikely to
allow a multinational firm to use its profits (beyond those due in the form of royalty payments)
to support a different licensee operating in another country.
A third problem is the risk associated with licensing technological know-how to foreign
companies. Technological know-how constitutes the basis of many multinational firms’
competitive advantage. Most firms wish to maintain control over how their know-how is used,
and a firm can quickly lose control over its technology by licensing it. Many firms have made
the mistake of thinking they could maintain control over their know-how within the framework
of a licensing agreement.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-185
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
145.
What are the advantages and disadvantages of using joint venture as a mode of entry into a
foreign market?
Joint ventures have a number of advantages. First, a firm benefits from a local partner’s
knowledge of the host country’s competitive conditions, culture, language, political systems,
and business systems. Thus, for many U.S. firms, joint ventures have involved the U.S.
company providing technological know-how and products and the local partner providing the
marketing expertise and the local knowledge necessary for competing in that country. Second,
when the development costs and/or risks of opening a foreign market are high, a firm might
gain by sharing these costs and or risks with a local partner. Third, in many countries, political
considerations make joint ventures the only feasible entry mode. Research suggests joint
ventures with local partners face a low risk of being subject to nationalization or other forms of
adverse government interference. This appears to be because local equity partners, who may
have some influence on host-government policy, have a vested interest in speaking out
against nationalization or government interference.
Despite these advantages, there are major disadvantages with joint ventures. First, as with
licensing, a firm that enters into a joint venture risks giving control of its technology to its
partner. However, joint-venture agreements can be constructed to minimize this risk. One
option is to hold majority ownership in the venture. This allows the dominant partner to
exercise greater control over its technology. But it can be difficult to find a foreign partner who
is willing to settle for minority ownership. Another option is to “wall off” technology from a
partner that is central to the core competence of the firm, while sharing other technology. A
second disadvantage is that a joint venture does not give a firm the tight control over
subsidiaries that it might need to realize experience curve or location economies. Nor does it
give a firm the tight control over a foreign subsidiary that it might need for engaging in
coordinated global attacks against its rivals. A third disadvantage with joint ventures is that the
shared ownership arrangement can lead to conflicts and battles for control between the
investing firms if their goals and objectives change or if they take different views as to what the
strategy should be.
13-186
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-187
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
146.
What is meant by wholly owned subsidiary? What are the advantages of wholly owned
subsidiaries?
In a wholly owned subsidiary, the firm owns 100 percent of the stock. Establishing a wholly
owned subsidiary in a foreign market can be done two ways. The firm either can set up a new
operation in that country, often referred to as a greenfield venture, or it can acquire an
established firm in that host nation and use that firm to promote its products.
There are several clear advantages of wholly owned subsidiaries. First, when a firm’s
competitive advantage is based on technological competence, a wholly owned subsidiary will
often be the preferred entry mode because it reduces the risk of losing control over that
competence. Many high-tech firms prefer this entry mode for overseas expansion (e.g., firms
in the semiconductor, electronics, and pharmaceutical industries). Second, a wholly owned
subsidiary gives a firm tight control over operations in different countries. This is necessary for
engaging in global strategic coordination (i.e., using profits from one country to support
competitive attacks in another). Third, a wholly owned subsidiary may be required if a firm is
trying to realize location and experience curve economies (as firms pursuing global and
transnational strategies try to do). When cost pressures are intense, it may pay a firm to
configure its value chain in such a way that the value added at each stage is maximized. Thus,
a national subsidiary may specialize in manufacturing only part of the product line or certain
components of the end product, exchanging parts and products with other subsidiaries in the
firm’s global system. Establishing such a global production system requires a high degree of
control over the operations of each affiliate. The various operations must be prepared to
accept centrally determined decisions as to how they will produce, how much they will
produce, and how their output will be priced for transfer to the next operation. Because
licensees or joint-venture partners are unlikely to accept such a subservient role, establishing
wholly owned subsidiaries may be necessary. Finally, establishing a wholly owned subsidiary
gives the firm a 100 percent share in the profits generated in a foreign market.
AACSB: Analytic
Blooms: Understand
13-188
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
147.
Describe the advantages of turnkey projects as a mode of entry into a foreign market.
The know-how required to assemble and run a technologically complex process, such as
refining petroleum or steel, 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. For example, the governments of many oil-rich countries have
set out to build their own petroleum-refining industries, so they restrict FDI in their oil-refining
sectors. But because many of these countries lack petroleum-refining technology, they gain it
by entering into turnkey projects with foreign firms that have the technology. Such deals are
often attractive to the selling firm because without them, they would have no way to earn a
return on their valuable know-how in that country. 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 the firm to unacceptable political and/or economic risks
(e.g., the risk of nationalization or of economic collapse).
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
13-189
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
148.
Describe the advantages and disadvantages of acquisitions as a means of establishing a
wholly owned subsidiary.
Acquisitions have three major points in their favor. First, they are quick to execute. By
acquiring an established enterprise, a firm can rapidly build its presence in the target foreign
market. Second, in many cases firms make acquisitions to preempt their competitors. The
need for preemption is particularly great in markets that are rapidly globalizing, such as
telecommunications, where a combination of deregulation within nations and liberalization of
regulations governing cross-border foreign direct investment has made it much easier for
enterprises to enter foreign markets through acquisitions. Such markets may see concentrated
waves of acquisitions as firms race each other to attain global scale. Third, managers may
believe acquisitions to be less risky than greenfield ventures. When a firm makes an
acquisition, it buys a set of assets that are producing a known revenue and profit stream.
Acquisitions fail for several reasons. First, the acquiring firms often overpay for the assets of
the acquired firm. Second, many acquisitions fail because there is a clash between the
cultures of the acquiring and acquired firm. Third, many acquisitions fail because attempts to
realize synergies by integrating the operations of the acquired and acquiring entities often run
into roadblocks and take much longer than forecast. Finally, many acquisitions fail due to
inadequate pre-acquisition screening.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-190
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
149.
Describe the pros and cons of greenfield ventures.
The advantage of establishing a greenfield venture in a foreign country is that it gives the firm
a much greater ability to build the kind of subsidiary company that it wants. For example, it is
much easier to build an organization culture from scratch than it is to change the culture of an
acquired unit. Similarly, it is much easier to establish a set of operating routines in a new
subsidiary than it is to convert the operating routines of an acquired unit. This is a very
important advantage for many international businesses, where transferring products,
competencies, skills, and know-how from the established operations of the firm to the new
subsidiary are principal ways of creating value.
Set against this significant advantage are the disadvantages of establishing a greenfield
venture. Greenfield ventures are slower to establish. They are also risky. As with any new
venture, a degree of uncertainty is associated with future revenue and profit prospects.
However, if the firm has already been successful in other foreign markets and understands
what it takes to do business in other countries, these risks may not be that great.
A final disadvantage is the possibility of being preempted by more aggressive global
competitors who enter via acquisitions and build a big market presence that limits the market
potential for the greenfield venture.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-191
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
150.
How should a firm choose between a greenfield venture and an acquisition?
The choice between acquisitions and greenfield ventures is not an easy one. Both modes
have their advantages and disadvantages. In general, the choice will depend on the
circumstances confronting the firm. If the firm is seeking to enter a market where there are
already well-established incumbent enterprises, and where global competitors are also
interested in establishing a presence, it may pay the firm to enter via an acquisition. In such
circumstances, a greenfield venture may be too slow to establish a sizable presence. If the
firm is considering entering a country where there are no incumbent competitors to be
acquired, then a greenfield venture may be the only mode. Even when incumbents exist, if the
competitive advantage of the firm is based on the transfer of organizationally embedded
competencies, skills, routines, and culture, it may still be preferable to enter via a greenfield
venture.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
13-192
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.