Deck 13: Selecting and Managing Entry Modes

Question 1

As companies expand their activities to include more products and/or markets, many firms discover the need for an export department or division.

Answer 1

True

Question 2

A sales representative represents the products of its own company only, not the products of other companies.

Answer 2

True

Question 3

A way a company can achieve economies of scale is to expand into international markets.

Answer 3

True

Question 4

The choice of how to enter a new market is influenced by many factors, including the local business environment and a company's own core competency.

Question 5

The three main reasons why companies begin exporting are to expand sales, diversify sales, and contract sales.

Question 6

Companies are often drawn into exporting when customers in other countries solicit their goods.

Question 7

Exporting is a low-cost, low-risk way of getting started in international business.

Question 8

Using a distributor reduces an exporter's risk, but also weakens the exporter's control over prices charged to buyers.

Question 9

Sales representatives do not take title to merchandise, rather they are hired by a company and normally compensated with a fixed salary plus commission based on the value of sales.

Question 10

Firms of all sizes ranging from entrepreneurs to large multinational firms, engage in exporting.

Question 11

The most common methods of buying and selling goods internationally are joint ventures and strategic alliances.

Question 12

Most large companies use exporting as a means of expanding total sales when the domestic market has become saturated.

Question 13

Direct exporters do NOT employ either local sales representatives or distributors.

Question 14

Typically, indirect exporting relies on local sales representatives or distributors.

Question 15

Exporting permits companies to diversify their sales.

Question 16

An entry mode is the institutional arrangement by which a firm gets its products, technologies, human skills, or other resources into a market.

Question 17

Matching needs to abilities is the first step in developing a successful export strategy.

Question 18

Initial contact with potential distributors and buyers in developing a successful export strategy should focus on building trust and a cooperative climate.

Question 19

By definition, direct exporters always sell directly to end users.

Question 20

Distributors take ownership of merchandise when it enters their country.

Question 21

A revocable letter of credit allows the bank issuing the letter to modify the terms of the letter only after obtaining the approval of both exporter and importer.

Question 22

Offset differs from a counterpurchase in that it does not specify the type of product that must be purchased, just the amount that will be spent.

Question 23

A company that exports products on behalf of an indirect exporter is called an export trading company (ETC).

Question 24

Whereas an export trading company (ETC) is restricted to export-related activities, an export management company (ETF) assists its clients by providing import, export and countertrade services, developing and expanding distribution channels, and even manufacturing products.

Question 25

Countertrade can provide access to markets that are otherwise closed because of a lack of hard currency.

Question 26

Advance payment is the least favorable method for exporters, but the most favorable method for importers.

Question 27

Export/import financing in which a bank acts as an intermediary without accepting financial risk is called documentary collection.

Question 28

Because of the cash outlays involved, countertrade is not an option for smaller companies.

Question 29

Individuals or organizations that represent one or more indirect exporters in a target market are called sales representatives.

Question 30

A freight forwarder is a specialist in export-related activities such as customs clearing, tariff schedules, and shipping and insurance fees.

Question 31

Barter is the oldest known form of countertrade.

Question 32

Advance payment normally takes the form of a sight draft.

Question 33

A sight draft extends the period of time following delivery by which the importer must pay for goods.

Question 34

Switch trading is the export of industrial equipment in return for products produced by that equipment.

Question 35

Counterpurchase is the exchange of goods or services directly for other goods or services without the use of money.

Question 36

An international ocean shipment requires an inland bill of lading to get the shipment to the exporter's border, and an ocean bill of lading for water transport to the importer nation.

Question 37

The biggest advantage of an export management company (ETF) is usually a deep understanding of the cultural, political, legal, and economic conditions of the target market.

Question 38

Indirect exporting occurs when a company sells its products to intermediaries who then resell to buyers in a target market.

Question 39

Since the 1960s, formerly communist countries in Eastern and Central Europe have extensively used countertrade.

Question 40

Agency relationships are popular among exporters because they are easy to terminate should difficulties arise.

Question 41

Franchising can allow for rapid geographic expansion.

Question 42

Letters of credit are popular among traders because banks assume most of the risks.

Question 43

The advance payment method reduces the risk of non-shipment the importer faces under the open account method.

Question 44

A confirmed letter of credit is guaranteed by both the exporter's bank in the country of export and the importer's bank in the country of import.

Question 45

Franchising is most common in manufacturing industries, whereas licensing is primarily used in service industries.

Question 46

Management contracts are better than turnkey projects at allowing governments to obtain designs for infrastructure projects from the world's leading companies.

Question 47

In a backward integration joint venture, the parties choose to invest together in downstream business activities.

Question 48

A relationship whereby two or more entities form a separate company to achieve the strategic goals of each is called a strategic alliance.

Question 49

Cross licensing occurs when companies employ licensing agreements to swap intangible property with one another.

Question 50

Generally, a joint venture exposes fewer of a partner's assets to risk than would a wholly owned subsidiary.

Question 51

Complete managerial control over day-to-day operations is an advantage of the wholly owned subsidiary entry mode.

Question 52

The primary advantage of franchising is that franchisees have a great degree of organizational flexibility.

Question 53

Under the stipulations of a turnkey project, one company supplies another with managerial expertise for a specific period of time.

Question 54

Because licensing creates a cooperative arrangement by "lending" strategically important property from one company to another, it eliminates future competition.

Question 55

Licensing often involves granting companies the right to use process technologies inherent to the production of a particular good.

Question 56

Commonly licensed intangible property includes patents, copyrights, special formulas and designs, trademarks, and brand names.

Question 57

The brand name or trademark of a company is normally the single most important item desired by a franchisee.

Question 58

The two types of knowledge transferred through management contracts are the specialized knowledge of technical managers and the business-management skills of general managers.

Question 59

A buyback joint venture is formed when each partner requires the same component in its production process.

Question 60

A wholly owned subsidiary is a facility owned and controlled by a single parent company.

Question 61

A(n) ________ represents its own company's products only, not those of other companies.

A) export trading company
B) agent
C) export management company
D) sales representative

Question 62

Because ________ take ownership of the merchandise when it enters their country, they accept all the risks associated with generating local sales.

A) distributors
B) sales representatives
C) indirect distributors
D) agent representatives

Question 63

The most important disadvantage of a strategic alliance is that it can create a future local or even global competitor.

Question 64

A company establishing relationships with potential local distributors, buyers, and others is at which step in the export process?

A) Step 1: Identify a potential market
B) Step 2: Match needs to abilities
C) Step 3: Initiate meetings
D) Step 4: Commit resources

Question 65

Which of these is NOT an entry mode?

A) Exporting and importing
B) Contractual entry
C) Secondary entry
D) Countertrade

Question 66

Sales representatives do all of the following EXCEPT ________.

A) take title to merchandise
B) make personal visits to local retailers and wholesalers
C) attend trade fairs
D) represent their own company's products only

Question 67

Which of these occurs when a company sells its products directly to buyers in a target market?

A) Direct exporting
B) Countertrade
C) Licensing
D) Franchising

Question 68

A company performing market research and interpreting results is at which step in the export strategy process?

A) Step 1: Identify a potential market
B) Step 2: Match needs to abilities
C) Step 3: Initiate meetings
D) Step 4: Commit resources

Question 69

Which of these is the first step in developing a successful export strategy?

A) Initiate meetings
B) Commit resources
C) Identify a potential market
D) Match needs to abilities

Question 70

In developing a successful export strategy, once a potential market has been identified the next step is to ________.

A) match needs to abilities
B) initiate meetings
C) commit resources
D) investigate demand in a target market

Question 71

Which of these is the final step in developing a successful export strategy?

A) Match needs to abilities
B) Commit resources
C) Identify a potential market
D) Initiate meetings

Question 72

The choice of entry mode depends on many factors, including ________.

A) experience in a market
B) amount of control managers desire
C) potential size of the market
D) all of the above

Question 73

Which of these refers to the institutional arrangement by which a firm gets its products, technologies, human skills, or other resources into a market?

A) Forward entry
B) Entry mode
C) Backward integration
D) Forward integration

Question 74

All of the following are true of direct exporting EXCEPT ________.

A) it involves a company selling its products directly to buyers in a target market
B) direct exporters rely on local sales representatives or distributors
C) direct exporters always sell directly to end users
D) all of the above

Question 75

Which of these take ownership of merchandise when it enters their country?

A) Sales representatives
B) Agents
C) Distributors
D) All of the above

Question 76

Which of these is NOT a reason why companies begin exporting?

A) Gain experience
B) Expand sales
C) Diversify sales
D) Exploit sales

Question 77

Types of entry modes available to companies include all of these EXCEPT ________.

A) exporting, importing and countertrade
B) contractual entry
C) investment entry
D) value entry

Question 78

A(n) ________ is the institutional arrangement by which a firm gets its products, technologies, human skills, or other resources into a market.

A) investment process
B) export
C) entry mode
D) market transfer

Question 79

All of the following are true of distributors EXCEPT ________.

A) they sell either to retailers and wholesalers or to end users through their own channels of distribution
B) they earn a profit equal to the difference between the price they pay and the price they receive for the exporter's goods
C) they do not take ownership of the merchandise when it enters their country
D) they can stunt the growth of the exporter's market share by charging unwarranted prices

Question 80

Which of these is the most common method of buying and selling goods internationally?

A) Exporting and importing
B) Contractual entry
C) Countertrade
D) Investment entry