Test Bank Chapter 18 Global Marketing and Business Analytics

Student name:__________

1) What are first-mover advantages? Discuss these advantages.

2) Explain the relationship between first-mover disadvantages and pioneering costs.

3) Discuss the trade-offs associated with large-scale entry versus small-scale entry.

4) Explain the idea of a turnkey project. Why should a firm use this arrangement to expand internationally? In what industries are turnkey arrangements most common?

5) Why should a firm be cautious about entering a licensing agreement?

6) Compare and contrast licensing agreements and franchising agreements.

7) What is a joint venture? What type of joint venture is most common? Provide an example of a joint venture.

8) Imagine that you are meeting with your superiors to discuss entering a foreign market. Your boss has asked you to analyze a joint venture prospect. Why might you tell your boss that the joint venture is not a good idea?

9) What are the two methods of entering foreign marketing using a wholly owned subsidiary?

10) Consider why a firm should enter a market via a wholly owned subsidiary. What are the advantages and disadvantages of this type of strategy?

11) Discuss the three advantages of acquiring an enterprise in a target market.

12) Discuss the advantages of establishing a greenfield venture in a foreign country.

13) Discuss the three primary characteristics of a good ally.

14) How can a firm increase the probability of selecting a good partner?

15) Explain the term relational capital and the importance this concept plays in managing an effective business alliance.

16) According to Bartlett and Ghoshal, how should firms from developing countries approach international expansion?

A) They suggest joint ventures to improve the firm’s presence in the country while also growing the business opportunities for companies in the developing country.
B) They suggest that franchising should be used in order to minimize risk and allow for the maximum expansion in the quickest amount of time.
C) They suggest turnkey operations that allow for a rapid startup.
D) They suggest that companies should use the entry of foreign multinationals as an opportunity to learn from these competitors by benchmarking their operations and performance against them.

17) The costs and risks associated with doing business in a foreign country are typically

A) low in an economically advanced nation.
B) low in the countries of the European Union.
C) high in an economically advanced nation.
D) high in a politically stable democratic nation.

18) _____ are the advantages associated with entering a market early.

A) Pioneering advantages
B) First-mover advantages
C) Core competencies
D) Late-mover advantages

19) Costs that an early entrant has to bear that a later entrant can avoid are known as

A) first-mover costs.
B) late-mover disadvantages.
C) pioneering costs.
D) licensing fees.

20) Large-scale strategic commitments may

A) have many benefits and few to no risks.
B) increase strategic flexibility.
C) have many risks and few to no benefits.
D) limit strategic flexibility.

21) A _____ is more likely to capture first-mover advantages associated with demand preemption, scale economies, and switching costs.

A) large-scale entrant
B) joint venture
C) small-scale entrant
D) turnkey contract

22) Other things being equal, the benefit-cost-risk trade-off is likely to be most favorable in

A) politically unstable developing nations that operate with a mixed or command economy.
B) nations where there is a dramatic upsurge in either inflation rates or private-sector debt.
C) politically stable developed and developing nations that have free market systems.
D) developing nations where speculative financial bubbles have led to excess borrowing.

23) Early entrants to a market that are able to create switching costs that tie customers into their products or services are capitalizing on

A) first-mover advantages.
B) pioneering costs.
C) economies of scale.
D) late-mover advantages.

24) Which of the following is a first-mover advantage?

A) lower research and development costs and marketing costs than other firms
B) ability to preempt rivals and capture demand by establishing a strong brand name
C) ability to capitalize on the work done by other firms
D) creation of innovative products at lower costs than other firms

25) Switching costs may

A) drive early entrants out of the market.
B) make it easy for later entrants to win business.
C) make it difficult for later entrants to win business.
D) give later entrants a cost advantage over early entrants.

26) The costs of promoting and establishing a product offering when a firm enters a foreign market prior to its rivals are known as ________ costs.

A) switching
B) market development
C) pioneering
D) promotional development

27) A large-scale entrant is more likely than a small-scale entrant to be able to capture first-mover advantages associated with

A) scale economies.
B) diseconomies of scale.
C) pioneering costs.
D) diseconomies of scope.

28) Which of the following statements about small-scale entry is true?

A) The commitment associated with a small-scale entry makes it possible for the small-scale entrant to capture first-mover advantages.
B) Small-scale entry is a way to gather information about a foreign market before deciding whether to enter on a significant scale.
C) By giving a firm time to collect information, small-scale entry increases the risks associated with a subsequent large-scale entry.
D) Small-scale entry limits a firm’s ability to learn about a foreign market thereby also limiting the firm’s exposure to that market.

29) _____ is advantageous because it avoids the cost of establishing manufacturing operations in the host country and it may help a firm achieve experience curve and location economies.

A) Licensing
B) Exporting
C) Franchising
D) A turnkey contract

30) In _____, the contractor agrees to handle every detail of the project for a foreign client.

A) a joint venture
B) an exporting agreement
C) a turnkey project
D) a licensing agreement

31) A disadvantage of _____ is that the firm that enters into such an arrangement usually will have no long-term interest in the foreign country.

A) wholly owned subsidiaries
B) exporting
C) licensing
D) turnkey projects

32) By its very nature, _____ limits a firm’s ability to coordinate strategic moves across countries.

A) licensing
B) turnkey contracting
C) franchising
D) exporting

33) An advantage of _____ with a local partner is the knowledge of the local environment that the local partner contributes to the venture.

A) turnkey contracts
B) licensing contracts
C) joint ventures
D) wholly owned subsidiary contracts

34) Which of the following is true of exporting?

A) It avoids the often substantial costs of establishing manufacturing operations in the host country.
B) It is the best choice if lower-cost manufacturing locations are available abroad.
C) Low transportation costs may make exporting uneconomical.
D) Tariff barriers may make exporting the most attractive option.

35) Which of the following is true of licensing?

A) Licensing is used when a firm possesses some tangible property but does not want to pursue a potential application itself.
B) The firm does not have to bear the development costs and risks associated with opening a foreign market.
C) It is an attractive option when a firm is interested in pursuing a foreign market and is ready to commit substantial resources to a foreign market.
D) It is an attractive option for firms that have the capital to open overseas markets.

36) _____ agreements enable firms to hold each other “hostage,” thereby reducing the risk they will behave in an opportunistic manner toward each other.

A) Turnkey
B) Franchising
C) Cross-license
D) Integrated license

37) There are several disadvantages of franchising as an entry mode. Which of the following is one of them?

A) There is little incentive for the franchisee to build a profitable operation as quickly as possible.
B) The firm incurs many of the costs and risks of opening a foreign market on its own.
C) Franchising may inhibit the firm’s ability to use the profits obtained to open additional businesses in the same country.
D) Franchising may inhibit the firm’s ability to take profits out of one country to support competitive attacks in another.

38) In many countries, political considerations make _____ the only feasible entry mode.

A) joint ventures
B) franchises
C) licensing agreements
D) wholly owned subsidiaries

39) How can a firm protect its proprietary information in a joint venture?

A) Share only the technology that is central to the core competence of the firm.
B) Hold majority ownership in the venture so that the firm has greater control over the technology.
C) Share only the technology of the firm, not the patents and copyrighted information.
D) Hold minority ownership in the venture so that the firm does not have to give over control of the technology.

40) Firms entering a market via a _____ must bear all the costs and risks associated with the venture.

A) licensing contract
B) joint venture
C) turnkey contract
D) wholly owned subsidiary

41) If a firm can realize location economies by moving production elsewhere, it should avoid

A) exporting.
B) turnkey contracts.
C) licensing.
D) wholly owned subsidiaries.

42) When an exporting firm finds that its local agent is also carrying competitors’ products, the firm may switch to a _____ to handle local marketing, sales, and service.

A) wholly owned subsidiary
B) franchising arrangement
C) turnkey operation
D) licensing agreement

43) In ____, the contractor agrees to handle every detail of the project for a foreign client, including the training of operating personnel.

A) exporting
B) licensing
C) franchising
D) turnkey projects

44) Turnkey projects are most common in which of the following industries?

A) fresh fruit, grain, and meat products
B) chemical, pharmaceutical, and metal refining
C) consumer durables, computer peripherals, and automotive parts
D) apparel, shoes, and leather products

45) Which of the following statements is true of turnkey projects?

A) Turnkey projects are most common in industries that use simple, inexpensive production technologies.
B) A turnkey strategy can be more risky than conventional FDI, particularly in unstable political environments.
C) A turnkey strategy is particularly useful where FDI is limited by host-government regulations.
D) Firms that enter into a turnkey deal have a long-term interest in the foreign country.

46) Many American firms that sold oil-refining technology to firms in the Gulf now find themselves competing with these firms in the world oil market. This is an example of

A) a firm entering into a turnkey project with a foreign enterprise, inadvertently creating a competitor.
B) a firm entering into a turnkey deal having no long-term interest in the foreign country.
C) a country subsequently proving to be a major market for the output of the process that has been exported.
D) a firm selling its process technology through franchisees in different countries.

47) An arrangement whereby a firm grants the right of intangible property to another entity for a specified time period in exchange for royalties is _____ agreement.

A) a turnkey
B) a licensing
C) a greenfield
D) an acquisition

48) Which of the following is a distinct advantage of exporting?

A) It avoids the threat of tariff barriers by the host-country government.
B) Firms benefit from a local partner’s knowledge of the host country’s competitive conditions.
C) It avoids the often substantial costs of establishing manufacturing operations in the host country.
D) It is appropriate if lower cost locations for manufacturing the product can be found abroad.

49) Patents, inventions, formulas, processes, designs, copyrights, and trademarks are all forms of

A) licensing agreements.
B) franchising agreements.
C) intellectual property.
D) tangible property.

50) What is the primary advantage of licensing?

A) It helps a firm avoid the development costs and risks associated with opening a foreign market.
B) It gives a firm the tight control over manufacturing, marketing, and strategy.
C) It helps a firm achieve experience curve and location economies.
D) It increases a firm’s ability to utilize a coordinated strategy.

51) Which of the following is a disadvantage of licensing?

A) It does not help firms that lack capital to develop operations overseas.
B) It does not give a firm the tight control over strategy that is required for realizing experience curve and location economies.
C) It cannot be used when a firm possesses some intangible property that might have business applications.
D) The firm has to bear the development costs and risks associated with opening a foreign market.

52) Under _____ 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) an integrated licensing
B) a chartering
C) a franchising
D) a cross-licensing

53) Cross-licensing agreements are increasingly common in the _____ industries.

A) transportation
B) high-technology
C) construction
D) consumer durables

54) _____ is pursued primarily by manufacturing firms and _____ is employed primarily by service firms.

A) Licensing; franchising
B) Franchising; licensing
C) Franchising; exporting
D) Exporting; licensing

55) If a service firm wants to build a global presence quickly and at a relatively low cost and risk, it must employ

A) chartering.
B) exporting.
C) a turnkey strategy.
D) franchising.

56) Which of the following statements about franchising is true?

A) It guarantees consistent product quality.
B) It tends to involve more short-term commitments than licensing.
C) It is a specialized form of licensing.
D) It is employed primarily by manufacturing firms.

57) Which of the following is an advantage of franchising?

A) A firm takes profits out of one country to support competitive attacks in another.
B) A firm is relieved of many of the costs and risks of opening a foreign market on its own.
C) It guarantees consistent product quality and achieves experience curve and location economies.
D) It improves the firm’s ability to take profits out of one country to support competitive attacks in another.

58) Firms engaging in a _____ with a local company can benefit from a local partner’s knowledge of the host country’s competitive conditions, culture, language, political systems, and business systems.

A) turnkey project
B) joint venture
C) greenfield investment
D) licensing arrangement

59) The most typical joint venture is a _____ venture.

A) 50–50
B) 60–40
C) 75–25
D) 10–90

60) In a ____, the firm owns 100 percent of the stock.

A) joint venture
B) wholly owned subsidiary
C) turnkey project
D) franchising agreement

61) Which of the following is true of wholly owned subsidiaries?

A) It is the least expensive method of serving a foreign market from a capital investment standpoint.
B) It the most feasible entry mode due to the political considerations.
C) It is required if a firm is trying to realize location and experience curve economies.
D) It is particularly useful where FDI is limited by host-government regulations.

62) A wholly owned subsidiary is appropriate when the firm wants

A) to share the cost and risk of developing a foreign market.
B) 100 percent of the profits generated in a foreign market.
C) a plant that is ready to operate.
D) to test a market.

63) A _____ entails establishing a firm that is owned together by two or more otherwise independent firms.

A) joint venture
B) licensing agreement
C) franchisee
D) turnkey contract

64) Apple exports its products to many countries. An advantage of exporting products to another country is that it

A) minimizes exchange rate risks.
B) provides the ability to achieve experience curve and location economies.
C) faces less trade barriers.
D) gives firms access to local knowledge.

65) When technological know-how constitutes a firm’s core competence, which entry mode is the optimal choice?

A) foreign franchises controlled by joint ventures
B) licensing agreements
C) wholly owned subsidiaries
D) turnkey contracts

66) Firms pursuing global standardization or transnational strategies tend to prefer _____ arrangements.

A) wholly owned subsidiary
B) franchising
C) joint-venture
D) licensing

67) If a firm’s core competency is based on control over proprietary technological know-how, _____ and _____ arrangements should be avoided if possible to minimize the risk of losing control over that technology.

A) licensing; joint venture
B) wholly owned subsidiary; exporting
C) turnkey contracts; exporting
D) exporting; joint venture

68) If a high-tech firm sets up operations in a foreign country to profit from a core competency in technological know-how, which of the following entry strategy is best?

A) joint ventures
B) licensing
C) wholly owned subsidiaries
D) turnkey contacts

69) The valuable asset of firms, whose competitive advantage is based on management know-how, is their

A) top management staff.
B) USP.
C) advertisements.
D) brand name.

70) Most service firms have found that _____ with local partners work best for the master controlling subsidiaries.

A) joint ventures
B) licensing agreements
C) greenfield investments
D) turnkey projects

71) A firm can establish a wholly owned subsidiary in a country by building a subsidiary from the ground up, called the

A) joint venture.
B) turnkey strategy.
C) licensing agreement.
D) greenfield strategy.

72) What is true of acquisitions?

A) It is a time-consuming process.
B) Managers view them as more risky than greenfield ventures.
C) They give the firm a much greater ability to build the kind of subsidiary company that it wants.
D) In many cases, firms make acquisitions to preempt their competitors.

73) According to the _____, top managers typically overestimate their ability to create value from an acquisition.

A) misvaluation theory
B) performance extrapolation hypothesis
C) market timing theory
D) hubris hypothesis

74) To increase the potential for a successful acquisition, a firm should

A) always bid low to allow for partial failure.
B) try to acquire a firm with a very different corporate culture so there is no forced overlap.
C) rush to beat out other competitors.
D) screen the foreign enterprise to be acquired.

75) Firms entering markets where there are no incumbent competitors to be acquired should choose

A) greenfield investments.
B) joint ventures.
C) acquisitions.
D) takeovers.

76) _____ allow a firm to rapidly build its presence in the target foreign market.

A) Joint ventures
B) Acquisitions
C) Subsidiaries
D) Turnkey contracts

77) The main advantage of _____ is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants.

A) an acquisition
B) strategic alliances
C) greenfield investment
D) franchising

78) If a firm is trying to enter a market where there are already well-established companies, and where global competitors are also interested in establishing a presence, the firm should choose

A) a franchise.
B) a greenfield investment.
C) a joint venture.
D) an acquisition.

79) Which of the following is true of establishing a greenfield venture in a foreign country?

A) Greenfield investments are less risky than acquiring an existing company in a foreign market.
B) A degree of uncertainty is associated with a greenfield venture because of future revenue and profit prospects.
C) Greenfield investments virtually eliminate the possibility of a more aggressive global competitor entering the market via acquisitions.
D) Greenfield investments are quick to establish.

80) _____ refer to cooperative agreements between potential or actual competitors.

A) Greenfield investments
B) Strategic alliances
C) Takeovers
D) Licensing agreements

81) Which of the following statements is true of strategic alliances?

A) The fixed costs and associated risks of developing new products or processes are borne by the alliance partner.
B) They are a way to bring together complementary skills and assets that both companies develop.
C) They limit the entry of firms into foreign markets.
D) A firm risks giving away technological know-how and market access to its alliance partner.

82) Managing an alliance successfully requires building interpersonal relationships between the firms’ managers. This is sometimes referred to as

A) relational capital.
B) relational assets.
C) operational assets.
D) venture capital.

83) An advantage of forming a strategic alliance is that it helps firms

A) protect their procedures and technologies.
B) reduce the level of conflicts that occur within an organization.
C) share the risks of developing new products or processes.
D) increase the cultural similarities between employees.

84) Which of the following is true of strategic alliances?

A) Strategic alliances can make entry into a foreign market difficult.
B) Strategic alliances, while they have many benefits, do not allow firms to share the fixed costs of developing new products or processes.
C) Strategic alliances allow firms to bring together complementary skills and assets that neither company could easily develop on its own.
D) Strategic alliances, while beneficial to firms, make the establishment of technological standards for an industry difficult.

85) _____ is a way to bring together complementary skills and assets that neither company could easily develop on its own.

A) An alliance
B) A turnkey contract
C) A wholly owned subsidiary
D) A licensing agreement

86) _____ can be used to formalize arrangements to swap skills and technology in a strategic alliance.

A) Modularization
B) Cross-licensing agreements
C) Structured transfer agreements
D) Contractual safeguards

87) _____ refers to the building of interpersonal relationships between the firms’ managers in a strategic alliance.

A) Alliance partnerships
B) Joint management
C) Relational capital
D) Team building

88) The choice of which international markets to enter should be driven by an assessment of absolute short-run growth and profit potential.

⊚ true
⊚ false

89) 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.

⊚ true
⊚ false

90) When determining the value of a foreign market, an international firm must consider both its products and the competition.

⊚ true
⊚ false

91) Educating customers is an element of pioneering costs.

⊚ true
⊚ false

92) A strategic commitment can usually be successfully reversed by the top management at will.

⊚ true
⊚ false

93) Gadgets, Inc., wants to enter a foreign market on a small scale. This will allow it to learn about the market while limiting the firm’s exposure to that market.

⊚ true
⊚ false

94) Exporting from a firm’s home base is most appropriate when lower-cost locations for manufacturing the product can be found abroad.

⊚ true
⊚ false

95) Tangible property includes patents, designs, copyrights, and trademarks.

⊚ true
⊚ false

96) Licensing limits a firm’s ability to realize experience curve and location economies.

⊚ true
⊚ false

97) Franchising enables a firm to quickly build a global presence.

⊚ true
⊚ false

98) The most typical joint venture is a 60–40 venture, in which one party holds most of the ownership stake.

⊚ true
⊚ false

99) A wholly owned subsidiary limits a firm’s control over marketing and sales in different countries.

⊚ true
⊚ false

100) If a firm’s core competence is proprietary technological knowledge, a joint venture is preferable.

⊚ true
⊚ false

101) Brand names such as Starbucks and Subway are well protected by international laws pertaining to trademarks.

⊚ true
⊚ false

102) A joint venture is often politically more acceptable than a wholly owned subsidiary and brings a degree of local knowledge to the subsidiary.

⊚ true
⊚ false

103) The greater the pressures for cost reductions, the more likely a firm will want to pursue some combination of exporting and wholly owned subsidiaries.

⊚ true
⊚ false

104) Acquisitions rarely produce disappointing results.

⊚ true
⊚ false

105) Overpayment for assets of an acquired firm is one reason acquisitions fail.

⊚ true
⊚ false

106) Johan’s firm is considering entering a country where there are no incumbent competitors to be acquired. Its best option is likely to be a greenfield venture.

⊚ true
⊚ false

107) Unlike joint ventures, strategic alliances require the firm to bear all the costs and risks of foreign expansion.

⊚ true
⊚ false

108) A good ally will expropriate the firm’s technological know-how while giving away little in return.

⊚ true
⊚ false

109) Contractual safeguards cannot be written into an alliance agreement to guard against the risk of opportunism by a partner.

⊚ true
⊚ false

110) To maximize the learning benefits of an alliance, a firm must try to learn from its partner and then apply the knowledge within its own organization.

⊚ true
⊚ false