2nd Edition Ball Exam Questions

Module 12 International Markets: Assessment and Entry Modes

1) Market screening is a modified version of environmental scanning in which the firm assesses the supply chain to eliminate the less desirable markets.

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Question Details
AACSB : Analytical Thinking
Bloom's : Remember
Accessibility : Keyboard Navigation
Learning Objective : 12-01 Review the steps of market screening and techniques for environmental analysis.
Topic : Environmental Analysis and Market Screening
Difficulty : 2 Medium

Market screening is an application of environmental scanning in which the firm identifies markets by using analysis of the environmental forces active in markets to eliminate the less desirable ones.

2) Environmental scanning provides the firm with information about world opportunities and threats.

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Question Details
AACSB : Analytical Thinking
Bloom's : Remember
Difficulty : 1 Easy
Accessibility : Keyboard Navigation
Learning Objective : 12-01 Review the steps of market screening and techniques for environmental analysis.
Topic : Environmental Analysis and Market Screening

Environmental scanning is a broader procedure in which a firm scans the world for changes in the environmental forces that might affect it.

3) Country and liability are units of analysis for initial market screening.

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Country and segment are two levels of initial market screening.

4) Segment screening involves using countries as the relevant unit of analysis.

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Two levels of market screening: country screening, using countries as the relevant unit of analysis, and segment screening, using a within-country analysis of groups of consumers.

5) A business would determine the need for a product in the initial screening process when assessing the international market.

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An initial screening based on the basic need potential is a logical first step because if the need for the good or service is lacking, no reasonable expenditure of effort and money will enable the firm to successfully market goods for which there is no need potential.

6) The basic need potential of any good is always difficult for a company to assess, which is why the initial screening process always takes a long time.

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Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Learning Objective : 12-01 Review the steps of market screening and techniques for environmental analysis.
Topic : Environmental Analysis and Market Screening
Bloom's : Understand
Difficulty : 2 Medium

The basic need potential of some goods is easy to assess. For example, producers of specialized industrial materials or equipment such as heavy-duty snow-removal equipment find little difficulty in assessing their basic need potential.

7) Knowing the number of imports to a specific country gives a firm a complete measure of market potential.

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Knowing the number of imports gives an estimate. Trade flows show the magnitude of current sales, but imports may not be the whole story on market potential.

8) After conducting an initial screening, a company will now have a longer list of prospects to choose from.

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After the initial screening, the analyst will have a much smaller list of prospects. Then a second screening based on financial and economic forces further reduces the list of potential markets.

9) Market indicators are based on economic data.

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Two measures of market demand based on economic data are especially useful at this point: market indicators and market factors.

10) A company would use a cluster analysis to divide market areas into groups in which the variables within each group would be similar.

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Cluster analysis divides objects (market areas, individuals, customers, and other variables) into groups so that the variables within each group are similar.

11) The cultural forces screening process is one of the easiest screenings a company has to do.

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12) Trade missions are organized by government trade specialists.

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Question Details
AACSB : Analytical Thinking
Bloom's : Remember
Difficulty : 1 Easy
Learning Objective : 12-02 Discuss the value of trade missions and trade fairs.
Topic : Value of Trade Missions and Trade Fairs
Accessibility : Keyboard Navigation

When government trade specialists perceive a foreign market opportunity for an industry, they may organize a trade mission, a market visit by businesspeople and/or government officials in search of business opportunities.

13) The massive amounts of data that businesses collect as they analyze consumer needs and trends is referred to as mass data.

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⊚ false

Question Details
AACSB : Analytical Thinking
Bloom's : Remember
Difficulty : 1 Easy
Accessibility : Keyboard Navigation
Topic : Environmental Analysis and Market Screening
Learning Objective : 12-03 Describe some of the problems market researchers encounter in foreign markets.

Big data refers to the massive sets of data, both structured and unstructured, that businesses are collecting, which can be analyzed with advanced data analysis methods such as predictive analytics or user behavior analytics to provide valuable insights into consumer needs and trends.

14) Producing a factory that is ready to operate is similar to producing a "turnkey project."

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Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 12-04 Explain international market-entry methods.
Topic : Different Modes for Entering Foreign Markets

A turnkey project is turned over to the purchaser and is ready to operate.

15) Licensing refers to a contractual agreement in which the licensor grants access to its patents, trade secrets, or technology for a fee paid by the licensee.

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⊚ false

Question Details
AACSB : Analytical Thinking
Bloom's : Remember
Difficulty : 1 Easy
Accessibility : Keyboard Navigation
Learning Objective : 12-04 Explain international market-entry methods.
Topic : Different Modes for Entering Foreign Markets

16) The licensee generally pays a fixed sum when signing a license agreement and then royalties over the life of the contract.

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The licensee generally pays a fixed sum when signing the licensing agreement and then a royalty of 2 to 5 percent of sales over the life of the contract (five to seven years with an option for renewal is one common way to structure such agreements).

17) Some firms grant licenses to other firms in order to reduce the competitive level of a potential rival, especially in the fashion industry.

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Technology is not the only thing that is licensed to support a firm’s market entry. In the fashion industry, a number of designers license the use of their names.

18) In a joint venture, an arrangement is made in which one firm contracts with another to produce products to its specification in order to enter a foreign market.

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19) Firms that form a strategic alliance will collaborate with one another.

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Often these joint ventures are strategic alliances, which are collaborations with competitors, customers, and/or suppliers. Strategic alliances may take other forms as well and are a response to growing global competition in an environment of increased research, product development, and marketing costs.

20) Franchising is a form of licensing.

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Firms have also gone international with a different kind of licensing—franchising. Franchising is a form of licensing in which one firm contracts with another to operate under a specific set of rules, permitting the franchisee to sell products or services under a well-publicized brand name and a well-proven set of procedures with a carefully developed and controlled marketing strategy.

21) Environmental scanning is mostly used

A) during the planning process to assess world threats.
B) during the second screening, to gather information on market weaknesses.
C) to determine triple bottom-line report data.
D) to predict weather conditions in the agricultural sector.

Environmental scanning is a broader procedure in which a firm scans the world for changes in the environmental forces that might affect it. For some time, environmental scanning has been used by managers during the strategic planning process to provide information about world threats and opportunities that could influence the context in which the firm operates.

22) Market screening is used by a company to

A) pinpoint the most attractive prospects.
B) understand the financial obligation of global exports.
C) prevent noncompetitive firms from joining alliances.
D) filter out potential competitors.

Market screening is an application of environmental scanning in which the firm identifies markets by using analysis of the environmental forces active in markets to eliminate the less desirable ones.

23) Market screening helps a business to eliminate

A) undesirable products.
B) less attractive markets.
C) environmental forces.
D) competition.

Market screening is an application of environmental scanning in which the firm identifies markets by using analysis of the environmental forces active in markets to eliminate the less desirable ones.

24) What are two levels of market screening?

A) Environmental and contextual screening
B) Country and segment screening
C) Competitive and price screening
D) Regional and environmental screening

Two levels of market screening: country screening, using countries as the relevant unit of analysis, and segment screening, using a within-country analysis of groups of consumers.

25) During the initial screening process, Carlock Inc. decided not to pursue activity in South America because consumers weren’t interested in purchasing high-end door locks for their automobiles. What was Carlock assessing in the initial process?

A) economic/financial forces
B) competitive forces
C) basic needs potential
D) cultural potential

26) What is the analyst mostly concerned with during the second screening?

A) Trends in inflation, interest rates, exchange rates
B) Banking legislation and regulation
C) Market growth
D) Consumer profile

After the initial screening, the analyst will have a much smaller list of prospects. Then a second screening based on financial and economic forces further reduces the list of potential markets. The major areas of concern here are trends in inflation, currency exchange rates, and interest rates. Other financial factors, such as credit availability, paying habits of customers, and rates of return on similar investments, are also important.

27) Credit availability, paying habits of customers, and rates of return are considered in the

A) first screening.
B) second screening.
C) third screening.
D) fourth screening.

Then a second screening based on financial and economic forces further reduces the list of potential markets. The major areas of concern here are trends in inflation, currency exchange rates, and interest rates. Other financial factors, such as credit availability, paying habits of customers, and rates of return on similar investments, are also important.

28) Peterson Home Centers is in the process of a market analysis. The latest reports about the project show that it is difficult for many consumers in their target market to obtain home improvement loans. Based on this, the company doesn’t think there will be much demand for their business and decides to search elsewhere. What step in the screening process helped Peterson Home Centers make this decision?

A) third—political and legal forces
B) fourth—cultural forces
C) second—financial and economic forces
D) first—basic needs potential

29) Market size, market growth rate, and e-commerce indexes are all examples of

A) big data.
B) trend analysis.
C) cluster analysis.
D) market indicators.

Market indicators are based on economic data that is used to measure relative market strength of countries or geographic areas.

30) Hennessey Fashion Corp. is an online retail clothing group that plans to enter the European market after its analysis showed that the number of digital clothing buyers has increased steadily over the past ten years and is projected to double in the next year. What is the company using to make its decision?

A) market indicator
B) economies of scale
C) competitive screen
D) political stability

Economic data that serve as yardsticks for measuring the relative market strengths of various geographic areas are known as market indicators.

31) Zip Mart Inc. has been able to forecast potential growth of their products in the Latin America market based on the pattern of historical growth rates their products have shown in the past. What is Zip Mart using to make these forecasts?

A) market factors
B) cluster analysis
C) trend analysis
D) basic needs potential

When analysts know the historical growth rates of either the relevant economic variables or the imports of a product, they can forecast future growth by means of trend analysis, a statistical technique used to estimate future values by successive observations of a variable at regular time intervals that suggest patterns.

32) Entry barriers, profit remittance barriers, and government controls are all part of the

A) first screening.
B) second screening.
C) third screening.
D) fourth screening.

The elements of the political and legal forces that can eliminate a market from further consideration or make it more attractive are many. We review those that most impact the IC, including barriers to entry, government controls, stability of government policy, and political stability.

33) A company would become aware of high tariff barriers that might prevent them from exporting their products during which step in the screening process?

A) second—financial and economic forces
B) fourth—cultural forces
C) first—basic needs potential
D) third—political and legal forces

Entry barriers such as high tariffs would be discovered during the third screening of political and legal forces.

34) The final step in the screening process will generally include

A) a personal visit to the market.
B) the use of primary data.
C) a cost-benefit analysis.
D) a visit to a trade fair.

Although much can be accomplished through analysis, there is no substitute for personal visits to markets that appear to have the best potential. An executive or company team should visit those countries that still appear to be good prospects, having reviewed the screening data along with any new information that the researcher can supply.

35) Parul is part of a team assessing international markets for the company. It is her job to learn the marketing strategies and pricing policies of companies already in the market. Which aspect of the screening process is Parul responsible for?

A) cultural forces
B) financial and economic forces
C) competitive forces
D) political and legal forces

In this screening, we examine markets on the basis of competitive forces such as: (1) The number, size, and financial strength of the competitors. (2) Their market shares. (3) Their marketing strategies. (4) The apparent effectiveness of their promotional programs. (5) The quality levels of their product lines. (6) The source of their products—imported or locally produced. (7) Their pricing policies. (8) The levels of their after-sales service. (9) Their distribution channels. (10) Their coverage of the market. (Could market segmentation produce niches that are currently poorly served?).

36) In which level of the market screening process does a company examine the distribution channels of companies who make similar products?

A) fifth—competitive forces
B) first—basic needs potential
C) second—financial and economic forces
D) third—political and legal forces

In the fifth screening, we examine markets on the basis of competitive forces such as: (1) The number, size, and financial strength of the competitors. (2) Their market shares. (3) Their marketing strategies. (4) The apparent effectiveness of their promotional programs. (5) The quality levels of their product lines. (6) The source of their products—imported or locally produced. (7) Their pricing policies. (8) The levels of their after-sales service. (9) Their distribution channels. (10) Their coverage of the market. (Could market segmentation produce niches that are currently poorly served?).

37) When assessing imports during a market screening, companies should remember that imports

A) do not completely measure a market's potential.
B) completely measure a market's potential.
C) are not related to a market's potential.
D) do not reflect the effects of nontariff barriers and other government actions.

Be aware, though, that imports do not completely measure a market’s potential. Trade flows show the magnitude of current sales, but imports may not be the whole story on market potential.

38) During market screening, a company assesses the basic needs potential as

A) a screening of the market's need for the good or service.
B) an assessment of the quality of life and level of economic development.
C) a measure of the market size.
D) an assessment of the purchase to potential ratio.

39) Which of these products would be the easiest to assess the basic needs potential of a market?

A) snow shovel
B) coffee
C) notebook paper
D) televisions

40) Country screening differs from segment screening in that

A) it looks at the country level, while segment screening is international.
B) there is no real difference, just terminology differences.
C) it looks at the country level, while segment screening is within the country.
D) segment screening is larger than country screening.

Two levels of market screening: country screening, using countries as the relevant unit of analysis, and segment screening, using a within-country analysis of groups of consumers.

41) Basic needs potential can be assessed the easiest by

A) using data obtainable from standard sources.
B) visiting the market and doing on-the-ground research.
C) doing calculations on present imports.
D) examining product substitutions.

There are many public sources for data to use in establishing the basic need potential. A list of firms in an industry is available from the industry’s association and from specialized trade media.

42) The FT900 is a

A) U.S. Department of Commerce monthly report on trade.
B) measure of quality levels necessary for the target market.
C) financial measure of disposable income.
D) stock market index that is keyed to imports.

Many national government trade or commerce offices compile foreign trade statistics. The U.S. Department of Commerce releases a monthly report, U.S. International Trade in Goods and Services, commonly referred to as the FT900.

43) When screening a market, import data indicate

A) that a market has been buying a certain product from abroad.
B) the standard of living of a market.
C) that market expansion may be a possibility.
D) that there are sophisticated segments of the market.

Import data indicate only that a market has been buying certain products from abroad and are no guarantee that these imports will continue. A competitor may decide to produce locally, which, in many markets, will cause imports to cease.

44) Market factors are similar to market indicators except that

A) they tend to correlate with the market demand for a given product.
B) indicators are an international measure.
C) factors are more general and domestic.
D) they are less reliable.

Market factors are similar to market indicators except they tend to correlate highly with the market demand for a given product. If analysts of a foreign market have no factor for that market, they may be able to use one from the domestic market or a comparable subsidiary to provide an approximation for the foreign market.

45) ________ is a statistical technique that uses patterns found in market data to estimate future values.

A) Trend analysis
B) Definable screening
C) Economy of scale
D) Market segmentation

Trend analysis is a statistical technique used to estimate future values by successive observations of a variable at regular time intervals that suggest patterns.

46) Trend analysis assumes that

A) past conditions affecting the dependent variable will remain constant.
B) trends or patterns are rare.
C) the historical data are accurate.
D) researchers are subjective.

When using growth rates, remember to make adjustments or develop alternate scenarios, because trend analysis assumes that past conditions affecting the dependent variable will remain constant.

47) Matteson Materials Corp. has a presence in more than 50 markets. The company is in the process of designing a software program that will create groups within each of these markets based on customer data. What is the purpose of this software?

A) cluster analysis
B) trend analysis
C) political analysis
D) growth analysis

As multinationals expand their presence to more markets, managers are searching for ways to group countries and geographic regions by common characteristics. Cluster analysis divides objects (market areas, individuals, customers, and other variables) into groups so that the variables within each group are similar.

48) An example of a political force of concern in market screening is

A) an import quota.
B) a significant number of local competitors.
C) a change in voter registration numbers.
D) a religious belief.

49) Local content restrictions are an example of a

A) political and legal force.
B) marketing force.
C) sustainability force.
D) cultural force.

Local content restrictions are an example of a political force.

50) Green Turf Lawn Corp. developed a product that eliminates weeds with just one application. The company has been overwhelmed by the number of new markets asking for the product and has to find a way to create groups with common characteristics that it can market to. What can the company use to achieve this?

A) cluster analysis
B) greenfield venture
C) economies of scale
D) trend analysis

51) The screening for cultural forces is considered

A) difficult because culture is a perceived phenomenon.
B) easy to complete using cultural databases and desk research.
C) unnecessary if there are locals involved in the process.
D) optional because globalization is integrating cultures.

A screening of the remaining candidates on the basis of cultural factors is next and is often an arduous process. First, recognition of cultural factors is a fairly subjective and interpretive process. The analyst, unless a specialist in the country, must rely on the perceptions and opinions of others. Second, data are difficult to assemble, particularly from a distance.

52) The purpose of the fifth screening, just before the final selection of markets, is to

A) look at the markets in terms of what and how the competition is doing.
B) determine that potential consumers can buy the product.
C) ensure that markets exist for the product.
D) analyze government involvement in trade.

In the fifth screening, markets are examined on the basis of competitive forces.

53) In most market screenings, there is

A) no substitute for a personal visit. The market must be visited.
B) no need to make a market visit, since the data resources are so abundant.
C) ample opportunity for consultants to substitute for a market visit.
D) a need for a personal visit when assessing customer need.

54) In the market screening process, the personal visit to a market is meant to

A) appraise the suitability of the company’s current marketing mix.
B) be an opportunity to meet local potential partners.
C) assess the competition's supply chains.
D) close the market screening with a well-deserved reward.

The goal of the visit is to corroborate what was learned from the five screenings, the desk research phase. A trip report would include firsthand observations on the market, including competitive activity, appraisal of the suitability of the firm’s current marketing mix, and availability of support services (such as warehousing, media agencies, and credit).

55) During a segment screening, it is important that the company is able to identify and measure segments. In other words, the segment must be

A) definable.
B) accessible.
C) actionable.
D) capturable.

Definable. We should be able to identify and measure segments. The more we rely on lifestyle differences rather than socioeconomic indicators, the more difficult this becomes, but the more accurate the resulting analysis is likely to be.

56) Con-Tractors Inc. decided not to conduct business in some parts of South America after it learned that governments hold all imports for up to 18 months before releasing to the importing country. What aspect of segment screening fostered this decision?

A) capturable
B) actionable
C) accessible
D) definable

Accessible. If we cannot reach our target segment for either promotional or distribution purposes, we will be unsuccessful.

57) What are three important characteristics of segments?

A) definable, large, and accessible
B) large, unambiguous, and affluent
C) affluent, accessible, and actionable
D) definable, affluent, and actionable

When we identify and assess segments, it is important that they be: (1) Definable. We should be able to identify and measure segments. The more we rely on lifestyle differences rather than socioeconomic indicators, the more difficult this becomes, but the more accurate the resulting analysis is likely to be. (2) Large. Segments should be large enough to be worth the effort needed to serve a segment and have the potential for growth in the future. Of course, as we adopt 3D printer manufacturing, the need to find large segments is beginning to recede for some products, including clothing and other consumer products, perhaps leading to a further wave of localization. (3) Accessible. If we cannot reach our target segment for either promotional or distribution purposes, we will be unsuccessful. (4) Actionable. If we cannot bring into play the components of marketing programs (the 4 Ps of product, promotion, place, and price), we may not be successful. For example, in Mexico, the price of tortillas was formerly controlled by the government. Therefore, competition on the price variable was impossible. Foreigners could not penetrate the Mexican market for the standard tortilla by offering a lower price. (5) Capturable. Although we would love to discover market segments whose needs are completely unmet, in many cases these market segments are already being served. Nonetheless, we may still be able to compete. Where segments are completely captured by the competition, however, our task is much more difficult.

58) A definable segment is one that

A) can be identified and measured.
B) has a clear reason and purpose.
C) is understood by the client.
D) relies on lifestyle differences.

Definable. We should be able to identify and measure segments.

59) Accessibility in a segment screening means that the segment is

A) reachable for promotion and distribution.
B) communicating in a shared language.
C) willing to be contacted by researchers.
D) ready to focus on our questions about the product.

Accessible. If we cannot reach our target segment for either promotional or distribution purposes, we will be unsuccessful.

60) An actionable segment is one that

A) allows the marketing mix to operate.
B) has resources to purchase the product.
C) perceives that the product line is useful.
D) can be measured and identified.

Actionable. If we cannot bring into play the components of marketing programs (the 4 Ps of product, promotion, place, and price), we may not be successful.

61) A capturable segment is one that

A) can be influenced to move from the competition.
B) can be traded on the open market.
C) can be reached through online communication.
D) is open to product modification.

Capturable. Although we would love to discover market segments whose needs are completely unmet, in many cases these market segments are already being served. Nonetheless, we may still be able to compete. Where segments are completely captured by the competition, however, our task is much more difficult.

62) Matmann Floor Coverings didn’t feel it would be successful in the foreign market because all of the countries it wanted to enter had tight price controls on the products the company produced. Which aspect of segment screening would reveal this to the company?

A) actionable
B) large
C) definable
D) capturable

Actionable. If we cannot bring into play the components of marketing programs (the 4 Ps of product, promotion, place, and price), we may not be successful.

63) The general purpose of a trade mission is to

A) search for business opportunities.
B) extend the political influence of a country.
C) spend time in the field to gather specific market data on consumer use.
D) gather additional data sources for market screening.

64) A trade fair is

A) an opportunity for companies to promote the sale of their products.
B) a way for governments to claim leadership in a sector.
C) an industry-wide holiday.
D) a government-sponsored trip to explore business opportunities.

Many nations hold periodic trade fairs, large exhibitions at which companies promote the sale of their products.

65) Mail surveys can be a difficult foreign market research tool because

A) it isn’t always clear who should be interviewed.
B) commercially generated mail is not welcomed in some areas.
C) response validity is lower on mail surveys.
D) response bias may be excessive or require payment.

Researchers encounter other cultural problems as they try to collect data. Low levels of literacy may make the use of mail questionnaires virtually impossible. If a husband is interviewed in a market where the wife usually makes the buying decisions, the data obtained from him may be worthless. Nor is it always clear who should be interviewed.

66) Callie lives in Europe and received a survey in the mail from a U.S. company wanting to know how her family used disposable paper towels. Callie never uses paper towels but she doesn’t want to reveal that in the survey so she answers the questions to please the company. Callie’s response is an example of

A) self-fulfilling prophecy.
B) ethnocentrism.
C) social desirability bias.
D) cluster analysis.

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Topic : Environmental Analysis and Market Screening
Difficulty : 2 Medium
Bloom's : Apply
Learning Objective : 12-03 Describe some of the problems market researchers encounter in foreign markets.

Respondents sometimes refuse to answer questions because of their general distrust of strangers. In other instances, the respondent’s desire to please may lead to answers calculated to please the interviewer; this is known as social desirability bias.

67) What is a cultural issue that might impede home-country researchers in a target market?

A) language differences
B) jet lag
C) cluster analysis
D) government interference

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Topic : Environmental Analysis and Market Screening
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 12-03 Describe some of the problems market researchers encounter in foreign markets.

Language differences are a cultural issue that can lead to research problems.

68) Technical difficulties researchers in international markets may encounter include

A) outdated maps.
B) an overabundance of competitors.
C) unusual work schedules and work values.
D) language differences.

Researchers may also encounter various technical difficulties. Up-to-date maps are often unavailable. The streets chosen for sampling may have three or four different names along their length, and the houses may not be numbered.

69) The social desirability bias is

A) the respondent's desire to please the researcher, leading to answers calculated to please.
B) the desire to be accepted as a foreigner in the local setting, so assuming local dress and mannerisms.
C) the desire to become part of the social in-group in the new setting, with high status.
D) a bias in favor of those locals who pretend to like and accept the researcher.

70) Online research communities are

A) online platforms that connect researchers to interested consumers willing to collaborate in the research.
B) groups of graduate students who travel to do research part time.
C) a sophisticated collection of proprietary data sources.
D) a loosely connected collaboration of local researchers who will collaborate with major marketing companies in their home markets.

These collaborative communities are a new trend in market research. These are online platforms that connect a company with a group of interested consumers to collaborate with them in qualitative research projects.

71) A company can use big data to

A) personalize the shopping experience.
B) generalize about increasingly larger segments.
C) identify outliers more readily.
D) promote shopping at home.

It's a bit of a paradox, but more and larger data sets help to personalize the shopping experience. Ironically, big data analytics will also play a part in literally personalizing the shopping experience. This trending form of analytics in fashion and other consumer goods will be able to identify each visitor and customize the experience accordingly. The online e-commerce platform is able to suggest products that link to the history of purchases and to the profile of the customer making the purchase.

72) An equity-based entry mode means that a company faces ________ risk and ________ control.

A) more; more
B) less; less
C) more; less
D) less; more

Question Details
AACSB : Analytical Thinking
Bloom's : Remember
Accessibility : Keyboard Navigation
Difficulty : 2 Medium
Learning Objective : 12-04 Explain international market-entry methods.
Topic : Different Modes for Entering Foreign Markets

We look first at nonequity-based modes, which tend to have less risk but also less control of their product in the market, and then at equity modes, which have more risk and also more control.

73) Companies wishing to sell internationally with minimal risk usually begin with

A) exporting directly.
B) local manufacturing.
C) establishing a local sales company.
D) licensing.

Most firms begin their involvement in international business by exporting—that is, by selling some of their regular production beyond their domestic market. This method requires little investment and is relatively free of risks. It is an excellent way to get a feel for international business without committing significant resources.

74) A turnkey project includes

A) plant design and technology supply.
B) direct selling.
C) government training.
D) construction up to but not including trial runs.

A turnkey project is an export of technology, management expertise, and, in some cases, capital equipment. The contractor agrees to design and erect a plant, supply the process technology, provide the production inputs, and then train the operating personnel. After a trial run, the facility is turned over to the purchaser.

75) What occurs with a licensing agreement?

A) An international firm receives permission from a foreign government to set up a subsidiary in that country.
B) One firm grants to another the right to use stipulated parts of its expertise.
C) A foreign company receives products made for it by another company.
D) One firm grants to another the right to use all of its expertise.

76) Gig-Em Electronics signed an agreement with Small Bytes, a computer components company that allows Gig-Em to use its trademark on its marketing materials. In return, Gig-Em pays Small Bytes a royalty of 4 percent of sales over the life of the contract. Which type of foreign market entry does this represent?

A) licensing
B) exporting
C) acquisition
D) wholly owned subsidiary

Question Details
AACSB : Analytical Thinking
Accessibility : Keyboard Navigation
Difficulty : 2 Medium
Bloom's : Apply
Learning Objective : 12-04 Explain international market-entry methods.
Topic : Different Modes for Entering Foreign Markets

By means of a licensing agreement, one firm (the licensor) will grant to another firm (the licensee) the right to use any kind of expertise, such as manufacturing processes (patented or unpatented), marketing procedures, and trademarks for one or more of the licensor’s products. The licensee generally pays a fixed sum when signing the licensing agreement and then a royalty of 2 to 5 percent of sales over the life of the contract (five to seven years with an option for renewal is one common way to structure such agreements).

77) Management contracts usually stipulate that

A) a fee be paid to the firm providing the management expertise.
B) 30 to 50 percent of sales belong to the licensee.
C) 30 to 50 percent of revenues belong to the licensor.
D) the contract be annual with renewal options.

The management contract is an arrangement under which a company provides management in some or all functional areas to another party for a fee that typically ranges from 2 to 5 percent of sales.

78) Rather than try to find an existing facility to purchase, Barton Manufacturing Group decided to hire a company to build a manufacturing facility in the overseas market that would erect the plant, supply the process technology, train personnel, and conduct a trial run of operations. Once that was complete, the facility would be turned over to Barton ready to use. What form of entry does this represent?

A) turnkey operation
B) acquisition
C) wholly owned subsidiary
D) franchising

79) Franchising is a form of

A) contract management.
B) licensing.
C) contract manufacturing.
D) joint venture.

80) The principal ingredient that a franchiser exports is

A) a brand name.
B) local expertise.
C) commercial goods.
D) accounting methods and legal assistance.

Franchising is a form of licensing in which one firm contracts with another to operate under a specific set of rules, permitting the franchisee to sell products or services under a well-publicized brand name and a well-proven set of procedures with a carefully developed and controlled marketing strategy.

81) McDonald's, Pizza Hut, and Subway are examples of

A) joint ventures.
B) management contracts.
C) franchises.
D) strategic alliances.

Fast-food operations (such as Subway, McDonald’s, KFC, and Burger King) are the most numerous types of franchises.

82) Hilton Hotels provides management for foreign hotels that use the Hilton name. What is this an example of?

A) a joint venture
B) a management contract
C) a strategic alliance
D) contract manufacturing

The management contract is an arrangement under which a company provides management in some or all functional areas to another party for a fee that typically ranges from 2 to 5 percent of sales. International companies make such contracts with firms in which they have no ownership (e.g., Hilton Hotel provides management for foreign hotels that use the Hilton name, and Delta provides management assistance to foreign airlines).

83) International firms employ contracted manufacturing in order to

A) enter a foreign market without investing in plant facilities.
B) increase their export earnings.
C) establish tax havens and manage location of profits.
D) maintain production capabilities in-house.

International firms employ contracted manufacturing, an arrangement in which one firm contracts with another to produce products to its specifications, in order to enter a foreign market or to subcontract work there. Entering a foreign market via contracted manufacturing does not require an investment in plant facilities, so it is sometimes thought of as foreign direct investment without investment.

84) Strategic alliances are collaborations with

A) customers, competitors, and suppliers.
B) exporters and importers.
C) government groups and corporations.
D) internal departments of the company.

Often these joint ventures are strategic alliances, which are collaborations with competitors, customers, and/or suppliers.

85) Talia’s Tea Shoppes has entered into an agreement with Consumer Rail Corp. The tea company will have a shop in each of the 50 stations located along the commuter rail line. What type of entry mode does this represent?

A) strategic alliance
B) wholly owned subsidiary
C) greenfield venture
D) licensing

A strategic alliance is a collaboration with competitors, customers, and/or suppliers that may take nonequity or equity form.

86) To be successful in international markets, one has to

A) adapt to local culture and commit to a long-term presence.
B) sell what is most fashionable in the home market.
C) avoid employing locals.
D) avoid joint ventures and alliances.

Adaptation and a long-term presence are helpful, per Starbucks in China.

87) Nonequity modes of entry include

A) exporting, licensing, and franchising.
B) joint ventures and licensing.
C) subsidiaries and franchising.
D) a publicly held company.

Nonequity forays into the foreign market are these three modes plus turnkey project, management contracts, and contracted manufacturing.

88) Which equity-based mode of entry might involve two international companies joining forces to conduct business in a third market?

A) franchising
B) management contract
C) licensing
D) joint venture

A joint venture may be a corporate entity formed by an international company and local owners, by two international companies for the purpose of doing business in a third market, a corporate entity formed by a government agency (usually in the country of investment) and an international firm, or a cooperative undertaking between two or more firms of a limited-duration project.

89) Which form of market entry is equity-based?

A) turnkey project
B) management contract
C) wholly owned subsidiary
D) licensing

When management does decide to make a foreign direct investment, it usually has several alternatives available, though not all of them may be feasible in a particular country. They include the wholly owned subsidiary and joint venture.

90) After graduating from the University of Nebraska, Camilla took a three-month tour through Europe. During her travels, she noticed that she could rent a car from Hertz in Europe just like she could in the United States and she could order a pizza from Pizza Hut and mail a package at the UPS store. The three companies she identified are all examples of

A) licensing.
B) franchising.
C) greenfield ventures.
D) acquisitions.

Kind of licensing—franchising. Franchising is a form of licensing in which one firm contracts with another to operate under a specific set of rules, permitting the franchisee to sell products or services under a well-publicized brand name and a well-proven set of procedures with a carefully developed and controlled marketing strategy. Fast-food operations (such as Subway, McDonald’s, KFC, and Burger King) are the most numerous.

91) ________ is an application of environmental scanning that companies use to eliminate the less desirable markets.

Market screening is an application of environmental scanning in which the firm identifies markets by using analysis of the environmental forces active in markets to eliminate the less desirable ones.

92) ________ screening is an in-country analysis of groups of consumers.

Two levels of market screening: country screening, using countries as the relevant unit of analysis, and segment screening, using a within-country analysis of groups of consumers.

93) Environmental ________ is a broader procedure that companies use to study the world for changes in the environmental forces that might affect it.

Environmental scanning is a broader procedure in which a firm scans the world for changes in the environmental forces that might affect it.

94) The initial screening of a market screening process is to discover the ________ potential.

95) After the initial screening, the size of the list of market prospects that appeal to the company will become ________.

Each successive step of the screening reduces the number of candidates.

96) Market ________ are economic data that serve as yardsticks to measure the relative market strength of specific geographic areas.

Economic data that serve as yardsticks for measuring the relative market strengths of various geographic areas are known as market indicators.

97) Market ________ are similar to market indicators, but they tend to correlate highly with market demand for a specific product.

Market factors are similar to market indicators except they tend to correlate highly with the market demand for a given product.

98) ________ is a statistical method that companies use to estimate future values by observations of a variable that indicate a pattern.

99) When companies want to divide countries into different market areas or customer types, they use ________.

100) Markets in which the market segments are already being served fail the segment screening process because they are not considered ________.

101) The final step in the selection of new markets should be the ________.

Although much can be accomplished through analysis, there is no substitute for personal visits to markets that appear to have the best potential.

102) During the segment screening process, psychographics reveal the consumers’ ________.

When a company intends to do business in several countries, managers can choose two broad market screening approaches: country or segment. In the first approach, Brazil may be viewed as a target market segment. Using the second approach, while Brazil is the physical location of a large group of consumers, the important variables for segmentation are shared needs and wants among consumers across nationalities. These consumers may reside in different countries and speak different languages, but they have similar desires for a product or service. From this perspective, age, income, and psychographics (lifestyles) are the essential means of identifying market segments.

103) A ________ is a government-organized market visit by businesspeople and government officials in search of business opportunities.

104) A trade mission is a government-led visit to a prospective market, while a ________ is a market-oriented exhibition.

Many nations hold periodic trade fairs, large exhibitions at which companies promote the sale of their products.

105) In a personal interview or phone survey situation, some respondents want to help the interviewer out of politeness, or just to please them. This is known as ________.

106) Most firms begin their involvement in international business by ________.

Most firms begin their involvement in international business by exporting—that is, by selling some of their regular production beyond their domestic market.

107) A ___________ is an export of technology, management expertise, and in some cases, capital equipment.

A turnkey project is an export of technology, management expertise, and, in some cases, capital equipment.

108) ________ is a contract in which a firm grants access to its patents, trade secrets, or technology to another firm for a fee.

109) ________ is a type of licensing that includes a brand name, marketing support, and operational rules or procedures.

110) ________ manufacturing is an arrangement in which one firm contracts with another to produce products to its specifications, in order to enter a foreign market.

111) Discuss the process of market screening.

112) For the purpose of estimating market potential, develop an example, real or hypothetical, using the estimation by analogy technique.

113) Discuss the value of a trade mission. Who conducts the mission? What is its purpose?

Question Details
AACSB : Analytical Thinking
Learning Objective : 12-02 Discuss the value of trade missions and trade fairs.
Topic : Value of Trade Missions and Trade Fairs
Accessibility : Keyboard Navigation
Bloom's : Understand
Difficulty : 2 Medium

114) Describe cultural issues a researcher might face when analyzing a foreign market.

115) If a firm wishes to go abroad but is unable to provide all the capital a wholly owned subsidiary would require, what other means of foreign involvement are available? Describe each one.

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